Introduction

Of all the modern service institutions, stock exchanges are perhaps the most crucial agents and facilitators of entrepreneurial progress. After the industrial revolution, as the size of business enterprises grew, it was no longer possible for proprietors or partnerships to raise colossal amount of money required for undertaking large entrepreneurial ventures. Such huge requirement of capital could only be met by the participation of a very large number of investors; their numbers running into hundreds, thousands and even millions, depending on the size of business venture. In general, small time proprietors, or partners of a proprietary or partnership firm, are likely to find it rather difficult to get out of their business should they for some reason wish to do so. This is so because it is not always possible to find buyers for an entire business or a part of business, just when one wishes to sell it. Similarly, it is not easy for someone with savings, especially with a small amount of savings, to readily find an appropriate business opportunity, or a part thereof, for investment. These problems will be even more magnified in large proprietorships and partnerships. Nobody would like to invest in such partnerships in the first place, since once invested, their savings would be very difficult to convert into cash. And most people have lots of reasons, such as better investment opportunity, marriage, education, death, health and so on for wanting to convert their savings into cash. Clearly then, big enterprises will be able to raise capital from the public at large only if there were some mechanism by which the investors could purchase or sell their share of business as ands they wished

to do so. This implies that ownership in business has to be “broken up” into a lager number of small units, such that each unit may be independently & easily bought and sold without hampering the business activity as such. Also, such breaking of business ownership would help mobilize small savings in the economy into entrepreneurial ventures. This end is achieved in a modern business through the mechanism of shares.

What is a share?
A share represents the smallest recognized fraction of ownership in a publicly held business. Each such fraction of ownership is represented in the form of a certificate known as a share certificate. The breaking up of total ownership of a business into small fragments, each fragment represented by a share certificate, enables them to be easily bought and sold.

What is a stock exchange?
The institution where this buying and selling of shares essentially takes place is the Stock Exchange. In the absence of stock exchanges, i.e. Institutions where small chunks of businesses could be traded, there would be no modern business in the form of publicly held companies. Today, owing to the stock exchanges, one can be part owners of one company today and another company tomorrow; one can be part owners in several companies at the same time; one can be part owner in a company hundreds or thousands of miles away; one can be all of these things. Thus by enabling the convertibility of ownership in the product market into financial assets, namely shares, stock exchanges bring together buyers and sellers (or their representatives) of fractional ownerships of companies. And for that very reason, activities relating to stock exchanges are also appropriately enough, known as stock market or security market. Also a stock exchange is distinguished by a specific locality and characteristics of its own; mostly a stock exchange is also distinguished by a

to list on the regional stock exchange nearest to their registered office. which for a long period was known as “the native share and stock brokers’ association”. Until recently. In order to provide an opportunity to investors to invest/ trade in the securities of local companies. was probably under a tree around 1870! The stock exchanges are the exclusive centers for the trading of securities. . wishing to list their securities. according to H. the earliest location of the Bombay Stock Exchange. In fact. The regulatory framework encourages this by virtually banning trading of securities outside exchanges. These are called regional exchanges. it is mandatory foe the companies. the area of operation/ jurisdiction of exchange were specified at the time of its recognition.physical location and characteristics of its own. which in effect precluded competition among the exchanges.T.Parekh.

Government nominee include representatives of the ministry of finance. the largest among them being the Bombay Stock Exchange. heads the board. who are expected to safeguard the public interest in the functioning of the exchanges. At present. a stock exchange has been an association of individual members called member brokers (or simply members or brokers). formed for the express purpose of regulating and facilitating buying and selling of securities by the public and institution at large. who is an elected member.  Typically. The member brokers are essentially the middlemen who carry out the desired transactions in securities on behalf of the public (for a commission) or on their own behalf. BSE alone accounts for over 80% of the total volume of transactions in shares.Characteristics of Stock Exchanges in India  Traditionally. 1956. . as well as some public representatives. a stock exchange is governed by a board consisting of directors largely elected by the member brokers. there are 23 stock exchanges in India. New membership to a Stock Exchange is through election by the governing board of that stock exchange. A president. A stock exchange in India operates with due recognition from the government under the Securities and Contracts (Regulations) Act. usually nominated by the government from among the elected members. and a few nominated by the government.

Thus. all ordinary shares. His duty is to ensure that the day to day operations the Stock Exchange are carried out in accordance with the various rules and regulations governing its functioning. who is usually appointed by the by the stock exchange with the government approval is the operational chief of the stock exchange.  The overall development and regulation of the securities market has been entrusted to the Securities and Exchange Board of India (SEBI) by an act of parliament in 1992.The executive director. . preference shares and debentures of the publicly held companies are listed in the stock exchange.  All companies wishing to raise capital from the public are required to list their securities on at least one stock exchange.

OTCEI and NSE are already dematerialized. of administration of broker-managed exchanges. 2001 proposed demutualization of exchanges by which ownership.. where ownership. Board of directors. management and trading membership would be segregated from each other. manages these.Exchange management Made some attempts in this direction. which do not include trading members. . two stock exchanges viz. Theses are purest form of dematerialized exchanges. the finance minister in March. but this did not materially alter the situation. The concept of dematerialization completely eliminates any conflict of interest and helps the exchange to pursue market efficiency and investors interest aggressively. In view of the less than satisfactory quality. management and trading are in the hands of three sets of people. Of the 23 stock exchanges in India. The regulators are working towards implementing this.

that is. prohibiting Fraudulent and unfair trade practices and insider trading in securities markets. is the national regulatory body for the securities market. As per the SEBI act. 1992. promotion and regulation of self. trustees of trust deeds. registrars to an issues. 1992.Role of SEBI The SEBI. investment advisors and such other intermediaries who may be associated with the stock market in any way. to “protect the interest of investors in securities and to promote the development of. and to regulate the securities market and for matters connected therewith and incidental too. sub-brokers. two members from the central government representing the ministries of finance and law. regulating substantial acquisition of shares and takeover of companies. under writers. merchant bankers. bankers to an issue (a public offer of capital). portfolio managers. set up under the securities and Exchange Board of India act. the Securities and the Exchange Board of India.” SEBI has its head office in Mumbai and it has now set up regional offices in the metropolitan cities of Kolkata. registration and regulations of mutual funds. Delhi.regulatory organizations. registration and regulation of the working stock brokers. calling for . and Chennai. the power and functions of the Board encompass the regulation of Stock Exchanges and other securities markets. The Board of SEBI comprises a Chairman. one member from the Reserve Bank of India and two other members appointed by the central government.

levying various fees and other charges. . 1956.regulatory organizations of the securities market. performing such functions and exercising such powers as contained in the provisions of the Capital Issues (Control) Act.1947 and the Securities Contracts (Regulation) Act. conducting necessary research for above purposes and performing such other functions as may be prescribes from time to time.information from. undertaking inspection. SEBI as the watchdog of the industry has an important and crucial role in the market as ensuring the market participants perform their duties in accordance with the regulatory norms. conducting inquiries and audits of stock exchanges. intermediaries and self.

The standards for admission of members lay down by NSE stress on factors. prescribed there under and the byelaws. guidelines. A broker is admitted to the membership of an exchange in terms of the provisions of the SCRA. . the SEBI act 1992. corporate structure. etc. rules and regulations of the concerned exchange. such as. the rules. The stock exchanges are free to stipulate stricter requirements for its members than those stipulated by SEBI. and reflect the conscious endeavors to ensure quality broking services. The minimum standards stipulated by NSE for membership are in excess of the minimum norms laid down by SEBI. etc. sell or deal in securities. circulars. track record. No stockbroker or sub-broker is allowed to buy. The broker enters into trades in exchanges either on his own account or on behalf of clients. The clients may place their order with them directly or a subbroker indirectly. notifications. unless he or she holds a certificate of registration granted by SEBI. A broker/sub-broker compiles with the code of conduct prescribed by SEBI.Membership The trading platform of a stock exchange is accessible only to brokers. education. capital adequacy. experience.

SCRR. is the only specialized organization in the country to provide stock index services. or a specified sector to measure the change in overall behavior of the markets or sector over a period of time. Index services Stock index uses a set of stocks that are representative of the whole market. promoted by NSE and CRISIL. .Listing Listing means formal admission of a security to the trading platform of a stock exchange. bye-laws and regulations of the concerned stock exchange. . SCRA. invariably evidenced by a listing agreement between the issuer of the security and the stock exchange. 1956. the listing agreement entered into by the issuer and the stock exchange and the circulars/ guidelines issued by central government and SEBI. India Index Services & Products Limited (IISL). Listing of securities on Indian Stock Exchanges is essentially governed by the provisions in the companies act. rules.

It enables members from across the countries to trade simultaneously with enormous ease and efficiency. on a real time basis. screen-based trading system. The trading system provides tremendous flexibility to the users in terms of kinds of orders that can be placed on the system. SEBI. Thus. Internet trading is available on NSE and BSE. The bookstores only limit orders.registered brokers can . NSE was the first stock exchange in the country to provide nation-wide order-driven. NSE model was gradually emulated by all other stock exchanges in the country.Trading Mechanism All stock exchanges in India follow screen-based trading system. as of now. which are orders to buy or sell shares at a stated quantity and stated price. NEAT has lent considerable depth in the market by enabling large number of members all over the country to trade simultaneously and consequently narrowed the spreads significantly. for communicating clients’ orders to the exchanges through brokers. buy and sell orders originating from all over the country. the NEAT system provides an open electronic consolidated limit order book (OECLOB). The limit order is executed only if the price quantity conditions match. The trading system at NSE known as the National Exchange for Automated Trading (NEAT) system is an anonymous order-driven system and operates on a strict price/time priority. A single consolidated order book for each stock displays. SEBI has approved the use of Internet as an order routing system.

This serves primarily retail investors who are mobile and want to trade from any place when the market prices for st0ocks of their choice are attractive. SEBI approved trading through wireless medium or WAP platform. NSE is the only exchange to provide access to its order book through the hand held devices. which use WAP technology. NSE was the first exchange in the country to provide web-based access to investors to trade directly on the exchange. It was followed by the launch of Internet trading by BSE in March 2001. . SEBI has stipulated the minimum conditions to be fulfilled by trading members to start internet-based trading and services. It launched Internet trading in February 2000.introduce internet-based trading after obtaining permission from the respective Stock Exchanges.

INTRODUCTION .

Mumbai. whether against the companies or its own member-brokers. upholds the interests of the investors and ensures redressal of their grievances. with 4700 listed as of August 2007. BSE and the National Stock Exchange of India account for most of the trading in shares in India. India. The Exchange. the equity market capitalization of the companies listed on the BSE was US$ 1. On 31 December 2007. making it the largest stock exchange in South Asia and the 12th largest in the world. which was founded in 1878. The Stock Exchange.The Stock Exchange. With over 4700 Indian companies list on the stock exchange. It may be noted that the Stock Exchanges is the oldest one in Asia.It is located at Dalal Street. It has evolved over the years into its present status as the premier Stock Exchange in the country. even older than the Tokyo Stock Exchange. Mumbai. And it has a significant trading volume. popularly known as "BSE" The Bombay/Mumbai Stock Exchange Limited (formerly.79 trillion. Mumbai. popularly called The Bombay/Mumbai Stock Exchange. The BSE SENSEX (SENSitive indEX). is a widely used market index in India and Asia. or BSE) is the oldest stock exchange in Asia and has the greatest number of listed companies in the world. as a voluntary non-profit making association. It also strives to educate and enlighten the investors by . also called the "BSE 30". while providing an efficient and transparent market for trading in securities. Though many other exchanges exist. Mumbai Stock Exchange Limited was established in 1875 as "The Native Share and Stock Brokers Association".

e.19 crores and average number of daily trades was 5.making available necessary informative inputs and conducting investor education programmes.e. a Reserve Bank of India nominee. 2001. July 2.69 lakhs. two SEBI nominees. introduction of Compulsory Rolling Settlements in all scripts traded on the Exchanges w.10 crores and number of average daily trades during the period to 5. However. The Executive Director as the Chief Executive Officer is responsible for the day-to-day administration of the Exchange. the average daily turnover of the Exchange during the year 2001. abolition of account period settlements. 1244. A Governing Board comprising of 9 elected directors (one third of them retire every year by rotation).17 lakhs.f. 2001. December 31.3984. have adversely impacted the liquidity and consequently there is a considerable decline in the daily turnover at the Exchange. etc. six public representatives and an Executive Director is the apex body.2002 has declined to Rs. which decides the policies and regulates the affairs of the Exchange.f. The average daily turnover of the Exchange during the year 2000-2001 (April-March) was Rs. The ban on all deferral products like BLESS and ALBM in the Indian capital Markets by SEBI w. .

1860-1865 Cotton price bubble as a result of the American Civil War. as the number of brokers constantly .90's Sharp increase in share prices of jute industries followed by a boom in tea stocks and coal. The Bombay Stock Exchange is known as the oldest exchange in Asia. 1870 .Bombay Stock Exchange history 1830's Business on corporate stocks and shares in Bank and Cotton presses started in Bombay. 1978-79 Base year of Sensex. defined to be 100. when stockbrokers would gather under banyan trees in front of Mumbai's Town Hall. 1986 Sensex first compiled using a market Capitalization-Weighted methodology for 30 component stocks representing well-established companies across key sectors. It traces its history to the 1850s. The location of these meetings changed many times.

The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as 'The Native Share & Stock Brokers Association'.Narasimha Rao. It took the exchange only fifty days to make this transition. 1992 On January 15. In 2000 the BSE used this index to open its derivatives market. July 25.001 in the wake of a good monsoon season and excellent corporate results. giving the BSE a means to measure overall performance of the exchange. the Sensex crossed the 2. The Bombay Stock Exchange developed the BSE Sensex in 1986. trading Sensex futures contracts. Since 1990 1000.increased. expanding the BSE's trading platform. In 1956. 1990 On July 25. Historically an open-cry floor trading exchange. the Sensex touched the magical fourdigit figure for the first time and closed at 1. The development of Sensex options along with equity derivatives followed in 2001 and 2002.000mark and closed at 2. .V. the Bombay Stock Exchange switched to an electronic trading system in 1995.020 followed by the liberal economic policy initiatives undertaken by the then prime minister P. 1990. 1992. July 1991 Rupee devalued by 18-19 % 2000. the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. January 15.

Index declines until Sept 2001 and loses half the value. Reliance Energy. 2595. 2001 Bottoms.000 points for the first time.091 on the expectations of a liberal export-import policy. October 8. March 30. 1992 On March 30. June 20. the Sensex crossed the 4. 1999. 2005 On September 8. the news of the settlement between the Ambani brothers boosted investor sentiments and the scripts of RIL. the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by the then Finance Minister. the Bombay Stock Exchange's benchmark 30-share index—the Sensex —crossed the 8000 level following brisk buying by foreign and domestic funds in early trading. Sept 21. 4000. . 1992. 2000 On February 11. 1992 On February 29.006.000-mark and hit and all time high of 6. February 11. Reliance Capital. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling. the InfoTech boom helped the Sensex to cross the 6. Feb 14. Dr Manmohan Singh. 2000 Tops. February 29.3000. 2005. and IPCL made huge gains. the Sensex crossed the 5. This helped the Sensex crossed 7. 6151. 8000. Coincides with dot-com bubble burst. 2005 On June 20.000mark and closed at 4.000mark as the BJP-led coalition won the majority in the 13th Lok Sabha election. 7000. September 8. 2000. 5000. 1999 On October 8. 6000. 1992. 2005.

. 2006. up 117. 11000. November 28. 2007 crossed the magical figure of 15.028 points. 14000.000 to touch 15. 2006 crossed the 12. March 21. 10000. October 30.005 points in afternoon trade.001 points during midsession at the Bombay Stock Exchange for the first time.000 to 13.024. 2006 crossed the 14000-mark to touch 14. 15000.000mark and closed at a peak of 12. 2006 crossed the magical figure of 11.000 points. 2005 The Sensex on November 28. 2006 The Sensex on February 6. 2006 that the Sensex first closed at over 11. 2006 The Sensex on April 20.9%. 13000.000 to the 14. 2005 crossed the magical figure of 9000 to touch 9000. However.000 to 15.26 points.040 points for the first time. 2006 touched 10.003 points during mid-session. 2006 crossed the magical figure of 13. it was on March 27.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors. 2006 The Sensex on December 5. It took 135 days for the Sensex to move from 12. 12000.000 and touched a life-time peak of 11. The Sensex finally closed above the 10K-mark on February 7. 2006 The Sensex on March 21.000 and closed at 13.500 to 13.000 mark. 2006 The Sensex on October 30.000 and 123 days to move from 12.9000. It took 36 days for the Sensex to move from 13.000 points. It took seven months for the Sensex to move from 14. July 6. December 5.000. February 6.45 points or 0. April 20. 2007 The Sensex on July 6.

September 19. The Sensex finally ended with a gain of 654 points at 16. capital goods and refinery sectors. 2007 The BSE Sensex crossed the 18. as well as the largest intra-day gains of 993 points in absolute term backed by frenzied buying after the news of the UPA and Left meeting on October 22 put an end to the worries of an impending election. the Sensex crossed 16. The Sensex ended with a gain of 22 points at 16. The market set several new records including the biggest single day gain of 789 points at close. Nifty also touched a new high at 4659. October 9.16000. Within minutes after trading began. the Sensex crossed the 17. 2007 The Sensex crossed the 19. 2007. The index gained the last 1.000 points from the 17.887 . 2007 The Sensex scaled yet another milestone during early morning trade on September 19.921. It took just 8 days to cross 18. and finally . The index zoomed to a new all-time intra-day high of 18.096.000-mark backed by revival of funds-based buying in blue chip stocks in metal. September 26. The NSE Nifty gained 186 points to close at 4.000 points in just four trading days. 2007. The 30-share Bombay Stock Exchange's sensitive index took 53 days to reach 16.000 mark. The index touched a fresh all-time intra-day high of 19. Within minutes after trading began.000. 18000. Some profit taking towards the end. It finally gained 789 points to close at an all-time high of 18. October 15.000-mark on October 9.000 from 15. 19000.323. 2007.280. up 113 points. saw the index slip into red to 16.327. rising by 450 points from the previous close. 17000. 2007 The Sensex scaled yet another height during early morning trade on September 26.down 187 points from the day's high.000.732.000-mark.

000 mark in intra-day trading after 49 trading sessions. 20000. 14. It crossed the 21. The NSE Nifty rose to a record high 5.000 points after the index crossed the 19. ICICI Bank.000-mark on October 15.50 points. This was backed by high market confidence of increased FII investment and strong corporate results for the third quarter.059.670. The index took only 10 trading days to gain 1.200 mark.731 during the early trades.ended with a smart gain of 640 points at 19.87 points before ending at its fresh closing high of 19977. Reliance Industries.905. HDFC Bank and SBI among others.50 points before ending at 5. June 25. it later fell back due to profit booking. January 8.922. 2008 The Sensex closed below 15.90. 21000. Indian market suffer with major downfall from January 212008.220 amidst a negative sentiment generated on the Reserve Bank of India hiking CRR by 50 bps. 2008 The Sensex touched an intra day low of 13. The 30-share index spurted in the last five minutes of trade to fly-past the crucial level and scaled a new intraday peak at 20.000 mark on the back of aggressive buying by funds ahead of the US Federal Reserve meeting. The major drivers of today's rally were index heavyweights Larsen and Toubro. then pulled back and ended up at 14.67.60 points.200.024. a gain of 734. 2008 The Sensex peaks. . However.The Nifty gained 242 points to close at 5. 2007 The Sensex crossed the 20. FII outflow continued in this week. October 29. showing a hefty gain of 203. 15.220. June 13.

Six months ago.42 these creates a new history in Indian Market. This is a bad time for the Indian markets.12.21. 2008. Thus. July 2.800. After 2 hours Sensex again surged this leads to the suspension of full day trading. 2008 The Sensex closed at 11801. In the Opening Trade itself Sensex gain 15% from the previous day close this leads to the suspension of 2 hours trade. 2008 The Sensex today closed at 10527. Oct 10.51 points down from the previous day having seen an intraday fall of as large as 1063 points. 10527. 2008. 2008 The Sensex hit an intra day low of 12.70 hitting the lowest in the past 2 years. Bloomberg lists them as the top two gainers for the Sensex.822. 11801. 2009 After the result of 15th Indian general election Sensex gained 2110.70. This is the lowest that it has ever been in the past year. Oct 6. 14284.70 on July 2. closely followed by ICICI Bank and ITC Ltd. although Reliance and Infosys continue to lead the way with mostly positive results. .70.822. May 18.79 points from the previous close of 12173. the market had hit an all time high of 21206. on January 10. this week turned out to be the week with largest percentage fall in the Sensex.

17:35 :.16:50 .15:50 :.9:00 .9:00 :.9:30 :.15:50 .Hours of operation Beginning of the Day Session Login Session Trading Session Position Transfer Session Closing Session Option Exercise Session Margin Session Query Session End of Day Session :.16:35 .9:55 .17:35 The hours of operation for the BSE quoted above are stated in terms of the local time in Mumbai.16:50 :.16:05 .16:05 :.15:30 . India (also known as Bombay). This translates into a standard time zone UTC/GMT +5:30.15:30 :.16:35 :. .8:00 .

BSE STATISTICS As the number of companies that are listed at this exchange is quite huge. it is taken as April 1978=100. The Bombay Stock Exchange is a value weighted index and thus. it is obvious that the trading volume at this exchange would also be significant. the total equity market capitalization of the various companies listed at the exchange was about $999 billion. there is good consistency as far as the composition of BSE 30 is considered. is the commonly used market index in the country and is also called as BSE 30. This is because it comprises 30 major listed companies that tend to change with time depending upon market capitalization etc. The BSE Sensex. BSE is commonly used for making references. Sundays and holidays declared by the Exchange in advance.BSE's normal trading sessions are on all days of the week except Saturdays. it is composed of 30 major scripts pertaining to the 30 major listed companies. short form of BSE Sensitive Index. The 30 companies that make up the Index are not frequently changing as in the past 20 years. It is also important to note here that these 30 listed . only some of the companies have been changed. Even in other countries in Asia. As far as the base year is concerned. Thus. It is important to note there that in the month of May 2007.

BSE Tech. BSE 100. This is a large ticker on the wall of BSE and it displays continuously the latest share prices and prices of other stocks. There are many committees that are constituted by the board and these committees take care of different aspects of BSE.companies account for about one-fifth of the total market capitalization of Bombay Stock Exchange. As far as the organization structure is concerned. a person can easily get this quote and stocks can be bought or sold in order to gain advantage. BSE Auto. The daily operations at the stock exchange are looked after by the Managing Director and CEO. The first one is the BSE Broadcast. BSE Pharma etc. Thus. There is also a management team . VARIOUS ASPECTS RELATED TO BOMBAY STOCK EXCHANGE There are many other aspects related to Bombay Stock Exchange that need to be discussed in order to have the complete understanding of the topic. Bombay Stock Exchange has played a very important role in the development of capital market in India. BSE 200. it consists of Board of Directors and the Board formulates almost all the policy issues regarding the exercise and control of various activities performed at BSE. There are also many other indexes apart from BSE and these include BSE500. Let us now discuss about the various other aspects related to Bombay Stock Exchange.

The Bombay Stock Exchange provides a transparent and efficient market for the trading of different types of securities like shares.comprising various professionals that help MD & CEO in performing various tasks. This has been made possible by upgrading the hardware. There has been a greater emphasis that has been given to the technology that is used at the Bombay Stock Exchange in order to strengthen the performance and the functioning of the exchange. Apart from this. This enables the exchange to provide quality services to its various members. The reach of BSE is nationwide and it has its presence in about 417 cities and towns in nation that are located across the nation. It is important to note here that the BOLT capacity of the exchange has been enhanced to 40 lacks orders per day. software and the networking systems of the Bombay Stock Exchange are continuously upgraded by the Operations and Trading Department. The hardware. bonds etc. . the debt instruments and derivatives are also traded at the exchange.

we need to dive into history--specifically. The first corporate charters were created in Britain as early as the sixteenth century. but these were generally what we might think of today as a public corporation owned by the government. like the postal service. or sometimes the limited liability company (LLC). .HOW STOCK MARKET WORKS? In order to understand what stocks are and how stock markets work. Corporations in one form or another have been around ever since one guy convinced a few others to pool their resources for mutual benefit. the history of what has come to be known as the corporation. United Kingdom and Western Europe as the governments of those countries started allowing anyone to create corporations. Privately owned corporations came into being gradually during the early 19th century in the United States.

They can do this in two ways: by issuing bonds. to invest in their business. Typically. today's stock markets grew out of these public places. it needs to get money from somewhere. . that is. These entrepreneurs may commit some of their own money. one or more people contribute an initial investment to get the company off the ground. shares in the ownership of the company.In order for a corporation to do business. Long ago stock owners realized that it would be convenient if there were a central place they could go to trade stock with one another. which are basically a way of selling debt (or taking out a loan. depending on your perspective). and the public stock exchange was born. or by issuing stock. such as venture capital investors or banks. they will need to persuade other people. Eventually. but if they don't have enough.

its initial shareholders are able to acquire shares of stock from the point of subscription when a company is created. When a company starts to be traded to the public. the primary market comes in where those who subscribe to the initial public offering (IPO) takes on the shares of stock sold from point of IPO. they can do so by going to the stock market. As a corporation is formed. .What is Trade Stock Market System The stock market system is an avenue of how to trade stock for listed corporations. The stock market is a secondary market for securities trading wherein original or secondary holders of a company’s shares of stock can sell their stocks to other individuals within the frame work of the stock market system. When those who bought into a company at IPO point of view decides to sell their shares of stock to other people.

until it was decided that their success rate is no better than chance. to identify patterns.The stock market has buyers of stocks or those who wants to own a part of the company but wasn’t able to do so during the initial public offerings made by the company to the public when it has decided to list itself as a publicly listed company. etc. commodities. Technical analysts study trading histories to identify price trends in particular stocks. They use their findings . Now technical stock analysis is virtually non-existent.The attempt to look for numerical trends in a random function. Front and backend solutions are put into place that helps direct the exchange of shares of stock in timely and secure manner. or options in specific market sectors or in the overall financial markets. the ways of how to trade stock from one individual to another has become more complicated and more challenging to be regulated. Technology has aided in providing more efficient ways of transactions. As the stock market has developed and progressed over the years. A stock market term .. What is Technical Analysis? How is it different from Fundamental Analysis? Technical Analysis is a method of evaluating future security prices and market directions based on statistical analysis of variables such as trading volume. price changes. The stock market used to be filled with technical analysts deciding what to buy and sell. mutual funds.

or the economy as a whole.to predict probable. the sector it's in. which seeks to make judgments about the performance of a share based solely on its historic price behavior and without reference to the underlying business. Fundamental analysis can be contrasted with 'technical analysis’. Technical Analysis is a tool to detect if a trend (and thus the investor's behavior) will persist or break. This is done by tracking and charting the companies’ stock price. . It gives some results but can be deceptive as it relies mostly on graphic signals that are often intertwined. The speed (and advocates would say the accuracy) with which the analysts do their work depends on the development of increasingly sophisticated computer programs. trading patterns in the investments that they study. unclear or belated. volume of shares traded day to day. Fundamental analysis looks at a share’s market price in light of the company’s underlying business proposition and financial situation. often short-term. both on the company itself and also on its competitors. It might become a source of representiveness heuristic (spotting patterns where there are none). In this way investors hope to build up a picture of future price movements. It involves making both quantitative and qualitative judgments about a company.

In Secondary market share are traded between two investors. as distinguished from the Secondary Market.PRIMARY & SECONDARY MARKET There are two ways for investors to get shares from the primary and secondary markets. PRIMARY MARKET Market for new issues of securities. securities are bought by way of public issue directly from the company. In primary markets. . where previously issued securities are bought and sold.

It is characterized by being the only moment when the enterprise receives money in exchange for selling its financial assets. An organized market for used securities. . it is trading in previously issued financial instruments. This is part of the financial market where enterprises issue their new shares and bonds. Bombay Stock Exchange (BSE). governmental guaranteed loans etc. National Stock Exchange NSE. bond markets. Examples are the New York Stock Exchange (NYSE).A market is primary if the proceeds of sales go to the issuer of the securities sold. over-the-counter markets. residential mortgage loans. Most trading is done in the secondary market. To explain further. SECONDARY MARKET The market where securities are traded after they are initially offered in the primary market.

high economic growth. A bull market is typified by generally rising stock prices. Bull markets are when the market is generally rising.Investment Basics What is a Bull Market There are two classic market types used to characterize the general direction of the market. and strong investor confidence in the . typically the result of a strong economy.

as simple as it sounds. A market in which prices are rising. jobs are plentiful and inflation is low. Bear markets are the opposite--stock prices are falling. Simply put. bull markets are movements in the stock market in which prices are rising and the consensus is that prices will continue moving upward. For most. Since no one knows exactly when the market will begin its climb or reach its peak. and low investor confidence in the economy. this means buying securities early. Bull markets are generally characterized by high trading volume. and the view is that they will continue falling. this practice involves timing the market. The bull market tends to be associated with rising investor confidence and expectations of further capital gains. trending higher. A key to successful investing during a bull market is to take advantage of the rising prices. A market participant who believes prices will move higher is called a "bull".g. watching them rise in value and then selling them when they reach a high. The economy will slow down. Investors often attempt to buy securities as they . A news item is considered bullish if it is expected to result in higher prices. virtually no one can time the market perfectly. on average. bad economic news.. However. economic production is high. Bear markets are the opposite. A bull market is a financial market where prices of instruments (e. During this time. stocks) are.economy. An advancing trend in stock prices that usually occurs for a time period of months or years. coupled with a rise in unemployment and inflation. A bear market is typified by falling stock prices.

so they buy stocks. Speculators and risk-takers can fare relatively well in bull markets. Portfolios with larger percentages of stocks can work well when the market is moving upward. A bear market tends to be accompanied by widespread pessimism. What is a Bear Market? The opposite of a bull market is a bear market when prices are falling in a financial market for a prolonged period of time. A bear market is slang for when . They believe they can make profits from rising prices. Investors who believe in watching the market will buy and sell accordingly to change their portfolios. options.demonstrate a strong and steady rise and sell them as the market begins a strong move downward. Growth is what most bull investors seek. futures and currencies they believe will gain value.

So let's consider some of the major differences between the two. You can call a broker or go online to buy or sell Futures contracts.“Bulls make money. sector. F a m o u s S t o c k M a r k e t Q u o t e s & S a y i n g s . The order is facilitated through an 'exchange'. I get a response of "that's like trading stocks. Most individuals have likely traded stocks at one time or another. If an investor is "bearish" they are referred to as a bear because they believe a particular company. Bears make money. Pigs get slaughtered. such as the New York Stock Exchange for example. Buying and selling Futures is similar in this respect. isn't it?" In some ways they are similar.” Stocks and Futures . but only minutely so. Usually. They pick up a phone to call a broker or go online to purchase or sell. it is to buy in order to 'own' a percentage of a particular company or to liquidate such partial ownership. or market in general is going to go down. The order is then facilitated .What is the Difference? Are you new to trading? Perhaps you wonder what the difference is between trading Stocks and trading Futures. Often when I meet someone new who inquires as to what I do. industry.stock prices have decreased for an extended period of time.

When you buy a Futures contract. As a speculator simply trading to make a profit from trading itself and with no interest in actually taking delivery of product. noted by the contract. you will pay for the stock at the time of your purchase plus broker commissions. regardless of what the price of Wheat at market happens to be come May. buying a Futures contract does not give you ownership of a commodity or product. When you buy a stock. When buying a futures contract. With stocks. buying one May Wheat at 3.The commodity exchange act to bring people willing to assume risk for the opportunity to make a substantial . you simply are entering a contract. you are part owner of a company. you are simply entering into a contract to purchase the underlying commodity at a certain price at a future time. you are simply entering the buy side of a contract and no monies are paid other than commissions to your broker. They facilitate the transfer of property rights (ownership in the various companies offering stock). For example. from business entities to the individual small trader. Yet while buying a stock gives you part ownership in a company or portfolio of companies (as in a fund). The stock exchange act to bring capital from investors to the businesses that need that capital.through commodity exchange.00 simply creates a contract between you and the seller (whom you need not know as this is taken care of via the exchange) that come May you will take delivery of 5000 bushels of Wheat at $3 per bushel. such as the Chicago Mercantile Exchange for example. Rather. you will simply sell your contract prior to delivery at the going market price and the difference between your buy price and sell price is either your profit or loss. Stock exchanges and commodity exchanges are both membership organizations established to act as middlemen between the buys and sells of all types of traders.

To buy stocks. or a service. then your contract has lost value and your broker will notify you if your unrealized losses exceeds have gone beyond your minimum margin requirement.amount of money for taking such risk. Your broker may use the exchange calculated margin or require a different margin of their own. the money is removed immediately to make the purchase. The major answer is: LEVERAGE. there is no potential for a margin call. such as Soybeans. the broker will require a certain amount of margin (good faith deposit to cover any possible losses) in what is called a 'margin account'. like interest rates. Each commodity has a different minimum margin requirement depending on several factors. This helps transfer the price risk associated with ownership of various commodities. If the value of the commodity were to decrease and you are on the buy side of the contract. So perhaps you may be wondering why anyone would bother buying futures contracts rather than stocks. You simply own the stock outright. Once you make the purchase. The broker has the right (and likely will) liquidate your position if you are getting too close to not having enough to cover the losses in order to protect themselves. This is called a 'margin call'. With trading futures. you only need enough money in your account to purchase the stock outright plus commissions. Naturally you would want to have more capital than simply the margin amount when trading futures to avoid these broker calls. from producers. since you are not actually purchasing anything but simply entering a contract to do so at a later time (which you will exit prior to avoid delivery). With buying stocks outright. .

This is appealing to many traders and justifies the risk. you would be controlling $30. For example. And in this case you can end up getting a 'margin call' from your broker if your stock losses too much value. So for every dollar you have you can purchase $2 worth of stock. Known as a 'two-edged sword'. . You can increase the leverage of trading stocks if you trade with a margin account. The leverage is 2:1. Of course by purchasing stock with margin you can lose more than you have due to the leverage.Leverage gives the trader the ability to control a large amount of money (or commodity worth a lot of money) with very little money. What is that risk? Just as leverage can work in your favor.000 lbs at the current market price of say 75.000 worth for a leverage of over 35:1. the bottom line comes to MARGIN and LEVERAGE. if Live Cattle futures requires a minimum margin of $800 to trade a single contract. When you look at these two trading vehicles. it can work against you at the very same ratio. How this works is that the broker is actually 'lending' you the other 50%. and a single contract represents 40. This usually allows you to purchase stocks on margin at the usual rate of 50%.

the major stock market in this area is LSE (London Stock Exchange. In order to fully understand what is happening with your money. shares or other things like government bonds. within the UK. An index will be compromised of a special list of certain companies. because they can come in the form of pensions with their place of employment. For example. Every day a list is produced that includes indexes or companies and how they are performing on the market. additionally you . The Financial Times Stock Exchange dictates the average overall performance of 100 of the largest companies with in the UK that are listed on the stock market. The stock market is an avenue for investors who want to sell or buy stocks. The company invests this money in efforts to increase your retirement funds.Understanding The Stock Market Many people look to the stock market to enhance their hard-earned money more and more each year. Within the United Kingdom. owning one of these shares will give you many rights. the FTSE 100 is the most popular index. you will gain a portion of the profits and growth that the company experiences. for example. you should understand how the investments work. A share is a small portion of a PIC (public limited company). Some people are not even aware of their investments.

If you should decide to sell your share. Typically. these are paid on a twice per year basis. you will as well and on the opposite end of this spectrum if they do not make a profit. This will not affect the current value the share currently holds on the market. you will only benefit from it.will obtain occasional accounts and reports from the chosen company. Once you purchase a share of a company you will receive something called a share certificate. which means the value of the share you own will as well. as a shareholder. The way this works is if the company makes a profit. you will receive your profit in the form of a dividend. neither will you. this will likely not be the price that is listed upon the exchange and is specifically for reasons of a legal matter. This certificate will contain the total value of the share. if the company has experienced growth. If a company does extremely well their value increases. this will be your proof of ownership. Another exciting feature of owning a share of a company is the fact that you are given the right to vote in various aspects of what happens with the company. .

There are also types of securities referring to both categories as. Financial market comprises variety of instruments.g. From the point of different types of instruments held the market can be divided into the one of promissory notes and the one of securities (stock market). The second one refers to the market of long-term . e. The first one contains promissory instruments with the right for its owners to get some fixed amount of money in future and is called the market of promissory notes. Another classification is due to paying-off terms of instruments.Basics of Stock Market Financial markets provide their participants with the most favorable conditions for purchase/sale of financial instruments they have inside. The first one refers to the market of short-term promissory notes with assets age up to 12 months. while the latter binds the issuer to pay a certain amount of money according to the return received after paying-off all the promissory notes and is called stock market. forming assets prices within establishing proposition and demand and decreasing of operational expenses.. preference shares and converted bonds. Their major functions are: guaranteeing liquidity. They are also called the instruments with fixed return. incurred by the participants of the market. These are: market of assets with high liquidity (money market) and market of capital. Usually it can be classified according to the type of financial instruments and according to the terms of instruments’ paying-off. hence its functioning totally depends on instruments held.

promissory notes with instruments age surpasses 12 months. its part in the market and future potential shares can be divided into several groups. while the stock market’s not. This classification can be referred to the bond market only as its instruments have fixed expiry date. Now we are turning to the stock market. large capitalization and constancy in paying-off dividends are referred to as blue chips. As it was mentioned before. its managers typically pursue the policy of reinvestment of revenue into further development and modernization of the company. Blue Chips Shares of large companies with a long record of profit growth. 2. . 4. ordinary shares’ purchasers typically invest their funds into the companyissuer and become its owners. Growth Stocks Shares of such company grow faster. The shares of such companies usually use mutual funds in the plans for middle-aged and elderly people. These companies rarely pay dividends and in case they do the dividends are minimal as compared with other companies. Income Stocks Income stocks are the stocks of companies with high and stable earnings that pay high dividends to the shareholders. Defensive Stocks These are the stocks whose prices stay stable when the market declines. annual return over $4 billion. Due to the financial experience of the company. 3. do well during recessions and are able to minimize risks. 1. Their weight in the process of making decisions in the company depends on the number of shares he/she possesses.

While calculating acceptable share price. Ordinary shares do not guarantee paying-off dividends. you can also quarterly receive dividends. dividends growth rate and discount rate. Each ADR signals of one or more shares possession. mostly when a company is in a financial distress or in case executives decide to reinvest income into the development of the business. Dividends of a company depend on its profitability and spare cash. shares category etc. They depend on: type of share.They perform perfect when the market turns sour and are in requisition during economic boom. When operating with shares. Price of ordinary share is determined by three main factors: annual dividends rate. with the possibility of being higher as well as lower. Shares can be issued both within the country and abroad. thus for better understanding investment process it is useful to keep in mind this division. In case a company wants to issue its shares abroad it can use American Depositary Receipts (ADRs). ADRs are usually issued by the American banks and point at shareholders’ right to possess the shares of a foreign company under the asset management of a bank. dividends are the key factor. The latter is also called a required income rate. There are periods when companies do not pay dividends at all. financial state of the company. These categories are widely spread in mutual funds. The company with the high risks level is expected to . Dividends differ from each other as they are to be paid in a different period of time. aside of purchase/sale ratio profits.

The higher cash flow the higher share prices and versus.have high required income rate. managers’ and executives’ wages etc. Below we will touch upon the division of share prices estimating in three possible cases with regard to dividends. If you are not confident of the information. distribution of profits between its shareholders. . it is absolutely important to examine company carefully as for its profit/loss accounting. it is more advisable not to hold shares for a long time (especially before financial accounting published). cash flows. This interdependence determines assets value. you can easily buy or sell shares. aside of risks and dividends analysis. While purchasing shares. Only when you are sure of all the ins and outs of a company. balance.

The more extreme the move up or down. the vast majority of investors do the exact opposite. the more money you will lose. the more extreme the movement in the opposite direction once the trend changes. Your ability to consistently buy low and sell high. of your investments.12 Basic Stock Investing Rules Every Successful Investor Should Follow There are many important things you need to know to trade and invest successfully in the stock market or any other market. If the market is going down and you are long. will determine the success. The stock market is always right and price is the only reality in trading. This is also known as "the trend always changes rule. If you want to make money in any market. Your rate of return is determined 100% by when you enter the stock market." . 2. As simple as this concept appears to be. the market is right and you are wrong. 1. the market is right and you are wrong. 3. The longer you stay wrong with the stock market. Other things being equal. you need to mirror what the market is doing. or failure. If the stock market is going up and you are short. 12 of the most important things that I can share with you based on many years of trading experience are enumerated below. the more money you will make. the longer you stay right with the stock market. Every market or stock that goes up will go down and most markets or stocks that have gone down will go up. Buy low-sell high.

Stock market winners only care about direction and duration. A huge mistake most investors make is assuming that stock markets are rational or that they are capable of ascertaining why markets do anything.4. all the big money is made by catching large market moves . it is only necessary to know that markets are moving not why they are moving. . you will probably never know for certain. The key is to know when to get aboard a trend and stick with it for a long period of time to maximize profits.sometimes months in advance. You need to get positioned before the largest directional trend move takes place. Stock markets generally move in advance of news or supportive fundamentals . we need long term trends to make sizeable money. To make a profit trading. The market reaction to good or bad news in a bull market will be positive more often than not. Since the trend is the basis of all profit. 5. If you wait to invest until it is totally clear to you why a stock or a market is moving. Contrary to the short term perspective of most investors today. If you are looking for "reasons" that stocks or markets make large directional moves.not by day trading or short term stock investing. you have to assume that others have done the same thing and you may be too late. you are wasting your time looking for the many reasons markets move. The trend is your friend. 6. while market losers are obsessed with the whys. The market reaction to good or bad news in a bear market will be negative more often than not. Since we are dealing with perception of markets-not necessarily reality.

Consistently profitable professional traders simply have better information . If you do not practice highly disciplined trading. and other such statistical tricks and data manipulation. market commentators. The Efficient Market Hypothesis is fallacious and is actually a derivative of the perfect competition model of capitalism. . You must let your profits run and cut your losses quickly if you are to have any chance of being successful. most trading ideas are losers. This is a stock trading “system” in itself. but it is a necessary condition. creates inefficient markets. stock trading system sellers. 9. If you eliminate optimization.7. 8. financial analysts. and lose much more money than they earn. The perfect competition model is not based on anything that exists on this earth. The Efficient Market Hypothesis at root shares many of the same false premises as the perfect competition paradigm as described by a well known economist. subjectivism. you will not make money over the long term. The combination of superior information for some investors and the usual panic as losses mount caused by buying high and selling low for others. Successful market timing is possible but not with the tools of analysis that most people employ. data mining. Never trust the advice and/or ideas of trading software vendors. Trading discipline is not a sufficient condition to make money in the markets. 10. Traditional technical and fundamental analysis alone may not enable you to consistently make money in the markets.and they act on it. Most non-professionals trade strictly on emotion.

brokers. 12. Keep in mind that Wall Street and other financial firms make money by selling you something . You should make your own trading decisions based on a rational analysis of all the facts. You can avoid making that huge mistake by avoiding buying things when they are high.. only one or two hours per week with little to no stress involved. unless they trade their own money and have traded successfully for years. Market timing can help avert this much too common experience. The most successful investing methods should take most individuals no more than four or five hours per week and. It should be obvious that you should only buy when stocks are low and only sell when stocks are high. Note those that have traded successfully over very long periods of time are very few in number.not instilling wisdom in you. etc. 11. The worst thing an investor can do is take a large loss on their position or portfolio. . for the majority of us. newsletter publishers. trading authors.

Stock Trading Psychology Many of today's highly successful traders will tell you that the general key to success in trading is to be able to comfortably take a loss. . a good day will always be one that is profitable. With that said. Because the art of trading in an unpredictable market fluctuates so greatly from one day to the next. let us have a look at things you as a trader should be aware of. experts in trading psychology believe that it is important that you concentrate on what you can control. Many traders think that in trading. Yes. In the world of trading. even those who are highly skilled traders know that it is inevitable. With that said. Trading psychology experts tells us this is not true. It is general knowledge among experts in the trading psychology field and among traders that the market is not predictable and it is safe to say that it never will be. A trader should define a good day as one where they have extensively researched and planned with discipline and focus. Looking into the short-term you cannot expect to be able to control the profits of your trading. Trading psychology tells us that when a trader loses he begins to become somewhat of a perfectionist in his dealing. when a trader has mastered the art of accepting losses and working through them with a well thought out plan then good days will become profitable in time. it is expected to take a loss. look at what you do you have ability to control. instead of things that are beyond your control. how you can take a loss effectively and use it towards the greater good of your trading world. and have followed through to the entire extent of the plan.

A common thing seen within the trading psychology world is that traders who are obsessed with their losses often have a hard time bouncing back from them. Then you will set your trade entries near your points. you will. thus making sure that losses will not be overly excessive if the hypothesis fails. in the long-term begin to generate profits. By learning to research your chosen strategies. Experts in trading psychology have organized three basic strategies you can use to effectively stop losses. You are able to control this factor by extensively researching the strategies you implement within your trading experiences.You do have the ability to control the difference between good and bad days. relate a loss with failure. thus controlling the amount of good and bad trading days you experience. To make this work you will need to make hypothesis's about the trade and identify a low point in that particular market. Realistic traders understand the unpredictability of the market and taking a loss is simply part of the art. thus losing in the end. The main key you must remember in trading psychology to be able to effectively limit your losses. Trading psychology experts tell us that it is important to become realistic in trading instead of becoming a perfectionist. These strategies are: * Price Based * Time Based * Indicator Based Stops that are priced based are generally used when the other two have not functioned. Perfectionist traders. . focusing only upon it. which is the ultimate goal of every trader. and will become obsessed with the failure. instead of becoming obsessed with them.

CAPITAL LISTED AND MARKET CAPITALIZATION. volume. If effectively used you should stop even if the price stop limit has not been achieved. Experts in trading psychology say that setting stops and rehearsing them mentally is a good psychological tool to use and will help ensure that you follow through. you should stop the trade. you should be aware of these indicators and utilize them extensively within your trading experiences. If you have no achieved your desired profit within that time limit. Look at indicators such as. and new highs and lows. As a trader. Designate a holding period you allow to capture a certain number of points. The Indicator based stop makes use of market indicators. declines.Time Based stops constitutes making use of your time. advances. .

908 crores as on the 31st March. 44% respectively of the overall capital listed on all the Stock Exchanges as on the same date. Bombay (BSE) is the premier Stock Exchange in India.11. 702 crores and Mahanagar Telephone Nigam Limited with the market capitalization of Rs. 700 crores.16. The capital listed in the BSE as on 31st March 1994 accounted for 50% of the overall capital listed on all the stock exchanges. The paid-up capital of equity. 31%. the Steel Authority of India had the largest market capitalization of Rs. The BSE accounted for 46 per cent of listed companies on an all India basis as on 31st March 1994.19. On the BSE. It ranked first in terms of the number of listed companies and stock issues listed. 1994 followed by the State Bank of India with the market capitalization of Rs. Its share of the market capitalization was around 74% as on the same date. BSE SENSEX .The Stock Exchange. debentures/bonds and preference were 73%.

well-established and financially sound companies. foreign investors and fund managers. foreign investors. It is the oldest index in India and has acquired a unique place in collective consciousness of the investors. the domestic international. institutional investors. print electronic media and is widely used to measure the used to measure the performance of the Indian stock markets. short form of Sensitive Index. Small wonder that the SENSEX has over the years has become one of the most prominent brands of the Country. In fact the SENSEX is considered to be the pulse of the Indian stock markets. Further. The BSE SENSEX is the benchmark index of the Indian capital market and one. first compiled in 1986 is a “market Capitalization-Weighted” index of 30 component stocks representing a sample of large.The BSE SENSEX. which has the longest social memory. Objectives of SENSEX The BSE SENSEX is the benchmark index with wide acceptance among individual investors. The objectives of the index are: . it provides time series data over a fairly long period of time. The index is widely reported in both. as the oldest index of the Indian Stock Market.

Companies represented in the SENSEX .  Benchmark for funds performance The inclusion of blue chip companies and the wide and balanced industry Representation in the SENSEX makes it the ideal benchmark for fund managers to compare the performance of their funds. money managers and small investors. we believe that it will be the most liquid contract in the Indian market and will garner a predominant market share. no other index matches the BSE SENESX in the reflecting market movements and sentiments.  For index based derivatives products Institutional investors. The BSE SENSEX is in effect the proxy for the Indian stock markets. SENSEX is widely used to describe the mood in the Indian stock markets. To measure market movements Given its long history and its wide acceptance. all refer to the BSE SENSEX for their specific purposes. Since SENSEX comprises of the leading companies in all the significant sectors in the economy.

06. .Company name (As on 15.01) Hindustan lever Reliance limited Infosys technologies Reliance petroleum ITC State bank of India MTNL Satyam computers Zee telefilms Ranbaxy labs ICICI Larsen & toubro Cipla Hindalco HPCL TISCO Nestle Sector FMCG Chemicals and petrochemicals Information technology Oil and gas FMCG Finance Telecom Information technology Media Healthcare Finance Diversified Healthcare Metals and mining Metal and mining Metal and mining FMCG Trading System IN SENSEX Till Now. The transaction details of the account period (called settlement period) were submitted for settlement by members after each trading session. buyers and sellers used to negotiate face-to-face on the trading floor over a security until agreement was reached and a deal was struck in the open outcry system of trading. that used to take place in the trading ring.

market and limits orders from client-brokers and matches them according to the matching logic specified in the Business Requirement Specifications (BRS) document for this system.The computerized settlement system initiated the netting and clearing process by providing on daily basis statements for each member. through the BSE On-Line Trading (BOLT) system. TRADING The Exchange. which was initially . BOLT system accepts two-way quotations from jobbers. showing matched and unmatched transactions. which is 10 working days for group 'A' securities and 5 working days for group 'B' securities. which had an open outcry trading system. This system. The matching logic for the Carry-Forward System as in the case of the regular trading system is quote driven with the order book functioning as an "auxiliary jobber". Trading is done by members and their authorized assistants from their Trader Work Stations (TWS) in their offices. Settlement processing involves computation of each member's net position in each security. BOLT system has replaced the open outcry system of trading. after taking into account all transactions for the member during the settlement period. Through the BOLT system the members now enter orders from Trader Work Stations (TWSs) installed in their offices instead of assembling in the trading ring. had switched over to a fully automated computerized mode of trading known as BOLT (BSE on Line Trading) System.

both order and quote driven. Government of India on August 31. automatic order matching and faster execution of orders in a transparent manner. However. 1995. Shri P. August 13. which is now only order driven. was commissioned on March 14. 2002. In terms of the permission granted by SEBI and certain modifications announced later..f. the members of the Exchange are now free to install their trading terminals at any place in the country. The objectives of granting membership to the subsidiary companies formed by the Regional Stock Exchanges were to reach out to investors in these centers via the members of these Regional Exchanges and provide the investors in these areas access to the trading facilities in all scripts listed on the Exchange. admitted subsidiary companies formed by 13 Regional Stock Exchanges as its members. the Exchange obtained permission from SEBI for expansion of its BOLT network to locations outside Mumbai.e. the Exchange has. However. facilitates more efficient processing. the facility of placing of quotes has been removed w. In order to expand the reach of BOLT network to centers outside Mumbai and support the smaller Regional Stock Exchanges. as on March 31. Earlier. the members of the Exchange were permitted to open trading terminals only in Mumbai. 1997. Chidambaram inaugurated the expansion of BOLT network the then Finance Minister. in October 1996. 2001 in view of lack of market interest and to improve system-matching efficiency. The system. . The members of these Regional Stock Exchanges work as sub-brokers of the member-brokers of the Exchange.

thus. 'B1 '.m. 2002 was 173. 'B2' and 'Z' groups and Rights renunciations in all the groups of scripts in the equity segment.Trading on the BOLT System is conducted from Monday to Friday between 9:55 a. The Exchange. 'B2'. The 'F' group represents the debt market (fixed income securities) segment wherein 748 securities were listed as on March 31.e. and 3:30 p. viz. Of these. The Exchange has also the facility to trade in "C" group which covers the odd lot securities in 'A'. 'B1'. 1615 companies have been put in "Z" group as a temporary measure till they make arrangements for dematerialization of their securities. 2002. The 'Z' group was introduced by the Exchange in July 1999 and covers the companies which have failed to comply with listing requirements and/or failed to resolve investor complaints or have not made the required arrangements with both the Depositories. trading and settlement in their scripts would be shifted to their respective erstwhile groups. 2002. Once they finalize the arrangements for dematerialization of their securities. as on March 31..1930 and 3044 respectively.m. (NSDL) for dematerialization of their securities by the specified date. Central Depository Services (I) Ltd. 'B1'. 'B2' and 'Z' groups. 1429 companies were in "Z" group for not complying with the provisions of the Listing Agreement and/or pending investor complaints and the balance 1615 companies were on account of not making arrangements for dematerialization of their securities with both the Depositories. Companies in "Z" group numbered 3044 as on March 31. (CDSL) and National Security Depository Ltd. The scripts traded on the Exchange have been classified into 'A'. which represent the equity segment. The number of scripts listed on the Exchange under 'A'. 560. provides . September 30. 2001. 'F' and 'Z' groups. i..

With effect from December 31. April 22.. trading in all securities listed in equity segment of the Exchange takes place in one market segment. This scheme of selling physical shares in compulsory demat scripts is called as Exit Route Scheme. Compulsory Rolling Settlement Segment. viz. 2001. . Accordingly. The 'C' group can also be used by investors for selling upto 500 shares in physical form in respect of scripts of companies where trades are to be compulsorily settled by all investors in demat mode.e. Permitted Securities The Exchange has since decided to permit trading in the securities of the companies listed on other Stock Exchanges under " Permitted Securities" category which meet the relevant norms specified by the Exchange. 2002/ Computation of closing price of scripts in the Cash Segment: The closing prices of scripts are computed on the basis of weighted average price of all trades in the last 15 minutes of the continuous trading session. The facility of trading in odd lots of securities not only offers an exit route to investors to dispose of their odd lots of securities but also provides them an opportunity to consolidate their securities into market lots.f. to begin with the Exchange has permitted trading in scripts of five companies listed on other Stock Exchanges w.a facility to market participants of on-line trading in odd lots of securities and Rights renunciations.

However. in such a case. if there is no trade during the last 15 minutes.O facility is currently available only for Clearing Member (CM) Pool accounts/Principal Accounts maintained by the members with National Securities Depository Ltd. a facility has been made available to the members of automatically generating Delivery-Out (D. this did not result in a member's failure to deliver the shares to the Clearing House as there was a purchase transaction of some other buying client of the member in the same script and the same was netted off for the purpose of settlement. However.f. This Auto D.O. the member would require shares so that he can deliver the same .. (NSDL) and Central Depositories Services Ltd. 2000.O.) instructions on their behalf from their CM Pool A/cs by the Clearing House w. This Auto D. It is likely in some circumstances that a selling client of a member has failed to deliver the shares to him. This facility is. (CDSL) Self Auction As has been discussed in the earlier paragraphs. however. then the last traded price in the continuous trading session is taken as the official closing price. The members wishing to avail of this facility have to submit an authority letter to the Clearing House.O. Auto D. facility is available for CRS (Normal & Auction) and for trade-to-trade settlements. August 10. However. the Delivery and Receive Orders are issued to the members after netting off their purchase and sale transactions in scripts where netting of purchase and sale positions is permitted.e. not available for delivery of non-pari passu shares and shares having multiple ISINs. facility: Instead of issuing Delivery Out instructions for their delivery obligations in a settlement /auction.

so that they are in a position to deliver them to their buying clients in case of internal shortages.to his buying client. The investors in . Subsequently. Initially. enable the investors to hedge their risks. The internal shortages reported by the members are clubbed with the normal shortages in a settlement and the Clearing House for the combined shortages conducts the auction. the Exchange has since introduced the index options and options & futures in select individual stocks. the members have been given an option to submit floppies for conducting self-auction (i. the facility of trading in the Derivatives Segment has been confined to Index Futures. which otherwise would have taken place from the delivery of shares by the seller.. 2000 to. Such floppies are to be given to the Clearing House on the pay-in day. To provide shares to the members. if any. between the auction price and original sale price. as if they have defaulted in delivery of shares to the Clearing House).e. BASKET TRADING SYSTEM The Exchange has commenced trading in the Derivatives Segment with effect from June 9. A member after getting delivery of shares from the Clearing House in self-auction credits the shares to the Beneficiary account of his client or hand over the same to him in case securities received are in physical form and debits his seller client with the amount of difference.

f. The investors are also allowed to create their own baskets by deleting certain scripts from the Sensex basket of 30 scripts. the Exchange has provided the facility of Basket Trading System on BOLT.e. in one go. meet the needs of investors and also boost the volumes and depth in cash and futures markets. To participate in this . Further.. With a view to provide investors with this facility of creating Sensex linked portfolios and also to create a linkage of market prices of the underlying securities of Sensex in the Cash Segment and Futures on Sensex .cash market had felt a need to limit their risk exposure in the market to movement in Sensex . the 14th August 2000. This is expected to have balancing impact on the prices in both cash and futures markets. The investors need not calculate the quantity of Sensex scripts to be bought or sold for creating Sensex linked portfolios and this function is performed by the system. The trades executed under the Basket Trading System are subject to intra-day trading/gross exposure limits and daily margins as are applicable to normal trades. the investors are able to buy/ sell all 30 scripts of Sensex in the proportion of their respective weights in the Sensex . the Basket Trading System provides the arbitrageurs an opportunity to take advantage of price differences in the underlying securities of Sensex and Futures on the Sensex by simultaneous buying and selling of baskets covering the Sensex scripts and Sensex Futures. The Basket Trading System would. In Basket Trading System. Monday. thus. The Basket Trading System has been implemented by the Exchange w.

50 to prevailing Sensex . equity shares of thirty-two companies are classified as specified shares. specified shares or 'A' group and non-specified securities that are sub-divided into 'B1' and 'B2' groups. Presently. SETTLEMENT SYSTEM Securities traded on BSE are classified into three groups. a steady dividend. where the value of one Sensex basket is arrived at by the system by multiplying Rs. good growth record and a large volume of business in the secondary market.system the member indicates number of Sensex basket(s) to be bought or sold. Contracts in this group are allowed to be carried over to subsequent settlements upto a maximum permissible period of 75 days. . These companies typically have a large capital base with widespread shareholding. namely.

Investment through Stock Exchanges: Foreign Institutional Investors (FII) upon registration with the Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) are allowed to operate in Indian Stock Exchanges subject to the guidelines issued for the purpose by SEBI. . foreigners can even have holding upto 100 per cent. The Clearing House handles only the money part of 'B2' group while securities are physically exchanged between the brokers. buy or sell positions in a particular security can be either squared up by entering into contra transactions or can be further accumulated by entering into more buy or sell transactions. Direct investment: Foreign Companies are now permitted to have a majority stake in their Indian affiliates except in a few restricted industries. 2. 1996 are placed in the 'B2' group. All newly listed securities are placed in the 'B2' group. The period is a calendar week in the case of 'A' and 'B1' groups and 14 calendar days in the case of 'B2' group During an account period. In certain specific industries. The remaining securities-about 5800 as on May 31.495 relatively liquid securities are placed in a category called 'B1' group. Settlement of transactions is done on an 'Account Period' basis. Opportunities available for foreign investors 1. Clearing System The Clearing House of the Exchange handles the share and the money parts of the settlement process in the case of 'A' and 'B1' groups.

Guidelines for the purpose have been issued by SEBI. 3. GDR's and Euro convertibles. • Investment by FIIs through following alternative routes. III. Portfolio investment in primary or secondary markets will be subject to a ceiling of 24 per cent of issued share capital for the total holding of all registered FIIs in any one company. Offshore Single/Regional funds. 4. 5. The holding of a single FII in any one company is subject to a ceiling of 5 per cent of the total issued capital. which is.Important requirements under the guidelines are as under: I. However. Asset Management Companies/Merchant Banking: . Investment in Euro Issues/Mutual Funds Floated Overseas: Foreign investors can invest in Euro issues of Indian companies and in India-specific funds floated abroad. It is also not allowed to sell short. Disinvestments will be allowed only through a broker of a Stock Exchange. It should not offset a deal. foreign brokers at present are not allowed membership in India Stock Exchanges. permitted upto 51 per cent in all priority areas. However. II. A registered FII is required to buy or sell only for delivery. in applying the ceiling of 24 percent the following are excluded: • Foreign investment under a financial collaboration (DFI). Broking Business: Foreign brokers upon registration with the SEBI are now allowed to route the business of registered FIIs.

ARBITRATION MACHINERY There exists three level arbitration machinery. The first two levels. which are adjudicated by member brokers. The corpus of the fund is created by depositing 2.Foreign Participation in Asset Management Companies and Merchant Banking Companies is permitted.000. .1. It is further augmented by 50% of the interest accrued on 1% of the issue amount which is deposited by companies at the time of their public and rights issues for a three month period as a safeguard against non-refund of excess subscription. CUSTOMER PROTECTION FUND The objective of this fund is to provide insurance to investors in case of default by a member. The highest arbitrator in the Exchange is the Governing Board. The investor is indemnified from default to the extent of Rs. comprise of a two-member bench and a full bench that is to comprise of at least sixteen members respectively.5% of the listing fees and a levy on turnover at the rate or Re. Disputes unresolved in the Exchange are taken to the Court of Law. 00. 1 million of turnover.1 for Rs.

98 of which are quoted on Bombay. except delisting for specified periods. Calcutta. This index also includes prices on the other major stock exchanges of Delhi. It comprises of equity shares of 30 companies from both specified and non-specified securities groups. which are based on market capitalization. Subsequently. BSE National Index with 1983-84 as base year. The first index to be compiled was the BSE Sensitive Index with 1978-79 as the base year. DISCIPLINARY ACTION The Exchange has an eight member Disciplinary Action Committee (DAC) which decides on punitive action in disciplinary cases referred to it by the Surveillance and inspection departments of the Exchange Administration. If scrip is actively quoted on more than .GRIEVANCE REDRESSAL The Investor's Services Cell redresses investors' grievances against listed companies and stockbrokers. This index is made up of 100 scripts. However. was compiled. INDICES The Exchange compiles four indices. Ahmedabad and Madras. a broader based index. The companies have been selected on the basis of market activity. the Exchange does not have power to take penal action against listed companies.

The BSE-200. is necessary.one Exchange the average price of the scrip is used in the compilation of the index. is called the Dollex. which is more representative of the recent changes and is more balanced. This index. which was introduced in May 1994. volume of turnover and strength of the companies' fundamentals. it was felt that a new index. which have been selected on the basis of market capitalization. DISCLOSURE & LISTING NORMS Companies who wish to raise money from capital market follow guidelines relating to disclosure. Some of the disclosure norms are: . which indicates the movement of the market in dollar values. a need was felt to express the index values by taking into account the Rupee-Dollar conversion rate. dividing the current Rupee market value by Rupee-Dollar modifies the BSE-200 conversion rate in the base year. With divestment of Public Sector Unit (PSU) equity by government and a sharp increase in the number of companies listed over the last few years. consists of equity shares of 200 companies. Consequently. 1989-90 has been chosen as the base year for BSE-200. As the presence of the foreign investors grew. laid down by the Securities and Exchange Board of India. It was felt that the sensitive index-the most popular indicator of market movement-had become oversensitive to a handful of scripts.

The listing requirements with the Exchange call for further disclosure by companies to promote public confidence. •The company must explain to the Stock Exchange any large variation between audited and unaudited results in respect of any item. •Risk factors specific to the project and those which are external to the company. •When any person or an institution acquires or agrees to acquire any security of a company which would result in his holding five percent or more of the voting capital of the company. • All adverse events affecting the operations of the company. •Any change in key managerial personnel. including the existing holding the Exchange must be notified within two days of such acquisition by the company or by authorized intermediary or by the acquirer.•Details of other income if it constitutes more than ten percent of total income. •Any take-over offer made either voluntarily or compulsorily to a company requires a public announcement by both the offeror and the offeree company. . Important disclosures are: • The company is required to furnish unaudited half-yearly financial results in the prescribed Performa.

actual rates of transactions and indices on a real time basis. offers. Phase II: In 1994. settlement related daily transactions inputs and outputs were uploaded and downloaded from the TWS in the brokers’ offices.Computerized Trading BSE computerized its trading and settlement activities by following a threephased approach. Phase I: The primary objective of this phase was the real time dissemination of price data through the Display Information Driver System (DIDS). DIDS was commissioned in November 1992 to disseminate bids. .

51 0.76 153.24 3680.Phase III: Commissioned on March 14.16 5264.27 500.10 .46 59.78 Velocity 0. of 1992-93 1993-94 1994-95 1995-96 Companies Market Capitalization (In Rs.96 14.50 0.64 14. The BOLT system was commissioned with the Himalaya K 10.55 0.85 836.13 Annual Turnover (In Rs. all scripts-exceeding 5000 had been put on the BOLT system.72 456. 1995. by the 70th day of its commissioning. Billion) 3059.37 677.81 138. The system provides for a response time of two seconds and can handle more than two hundred thousand trades in a day. Stock Market Indicators 1991-92 No. Billion) 717.000 central trading computer hardware. screen based trading started with 818 scripts. Since then the hardware has been upgraded to the Himalaya K 20. Although.000 system.29 26.71 116.49 21.23 Average Daily Turnover (Apr-Mar) (Apr-Mar) (Apr-Mar) (Apr-Mar) (Apr-Mar) Listed 2061 2861 3585 4702 5603 1881.57 0.24 4354.87 (In US $ Billion) 97.77 (In US $ Billion) 22.

86 145 29.515 (In Million Nos.54 366 31.12 7. the President of India promulgated an Ordinance.97 194.67 636 26 2.850 73.35 124. .07 238.71 (Year End) BSE 2000 585. BSE in collaboration with Bank of India (BOI) will shortly establish a depository. of Registered Flls Fll Net investment (In Rs.61 1549.95 1605. Expansion of BOLT would bring more investors into the ambit of the capital market and consequently add depth to it. which allowed for establishment of depositories.855 3366.535 2280.06 7.38 0.50.010 3260.85 0.40 234.63 0.07 3.95 628 4 1.8 85.786 3778.71.(In Rs.06 1.00 (Year End) BSE National Index 1967. Billion) (In US $ Billion) No.89 558 4 3.53 450. of Shares Traded 6.35.07.10 No. of Members 558 (Year End) No.25 345.) Average Number of 75.24. BSE has applied for permission from SEBI to expand BOLT to other centers.313 65.67 308 21.84 0.32 (In US $ Billion) 0.19 (Year End) Dollex (Year End) 261.57 365.52 1021.792 63. Billion) 3.000 Daily Deals BSE Sensitive Index 4285.40 168.78 0. of Corporate 4 Members (Year End) 2.99 1829.16 0.24 0.92 641 63 Future Developments In 1995.25 No.42.

Brokers can trade from their offices. The orders placed by brokers reach the Exchange's central computer and are matched electronically.INTERVIEW: Market Basics What is a Stock Exchange? A common platform where buyers and sellers come together to transact in stocks and shares. using fully automated screen-based processes. Mumbai (BSE) and the National Stock Exchange (NSE) are the country's two leading Exchanges. It may be a physical entity where brokers trade on a physical trading floor via an "open outcry" system or a virtual environment. There are 20 other regional Exchanges. Howmany Exchanges are there in India? The Stock Exchange. connected via the Inter-Connected Stock Exchange (ICSE). What is an Index? . Their workstations are connected to a Stock Exchange's central computer via satellite using Very Small Aperture Terminus (VSATs). What is electronic trading? Electronic trading eliminates the need for physical trading floors. The BSE and NSE allow nationwide trading via their VSAT systems.

time at which the trade was transacted and the brokerage rate. with the value set at 1000. intended for investors who are concerned with general stock market price movements. An Index comprises stocks that have large liquidity and market capitalisation. The Index value compares the day's market capitalisation vis-a-vis base capitalisation and indicates how prices in general have moved over a period of time. Each stock is given a weightage in the Index equivalent to its market capitalisation. only registered members can operate in the stock market. Place your order with your broker preferably in writing. One can trade by executing a deal only through a registered broker of a recognised Stock Exchange What is a or through a SEBI-registered sub-broker. A contract note issued in the prescribed format establishes a legally enforceable relationship between the client and the member in respect of trades stated in the contract note. Howdoes one execute an order? Select a broker of your choice and enter into a broker-client agreement and fill in the client registration form. Similarly. the capitalisation of NIFTY (fifty selected stocks) is taken as a base capitalisation. BSE Sensitive Index or Sensex comprises 30 selected stocks. contract note? A contract note describes the rate.) regulations. A client . At the NSE.An Index is a comprehensive measure of market trends. Why does one needa broker? As per SEBI (Securities and Exchange Board of India. These are made in duplicate and the member and the client both keep a copy each. Get a trade confirmation slip on the day the trade is executed and ask for the contract note at the end of the trade date. date.

In order to receive this. Companies announce book closure dates from time to time. shares cannot be sold on an Exchange bearing a date on the transfer deed earlier than the book closure. It is important for a buyer of a share to ensure that shares purchased at cum benefits prices are transferred before book-closure.should receive the contract note within 24 hours of the executed trade. It must be ensured that the price paid for the shares is ex-benefit and not cum benefit. In case of book closure. The buyer of such a share will be a loser. cum rights or cum bonus and may therefore expect to receive these benefits as the new shareholder. The benefits of dividends. Book closure refers to the closing of register of the names or investors in the records of a company. rights issue accruing to investors whose name appears on the company's records as on a given date. is known as the record date. the company does not close its register of security holders. bonus issues. Corporate What is a book-closure/record date? Benefits/Action Book closure and record date help a company determine exactly the shareholders of a company as ona given date. Record date is the cut off date for determining the number of registered members who are eligible for the corporate benefits. An investor might purchase a share-cum-dividend. or he would stand deprived of the benefits. What is the difference between book closureand record date? In case of a record date. the share has to be transferred in the investor's name. This does not hold good for the .

record What is a no-delivery date. During this period only trading is permitted in the security. But the distribution of this surplus to shareholders seldom happens. This is done by increasing the number of shares outstanding and every shareholder is given bonus shares in a ratio . this is transferred to the reserves and surplus account. the buyer of the shares on or after the ex-date will not be eligible for the benefits. the Exchange sets up a no-delivery (ND) period for that security. dividend announced for which book closure/record date is fixed. the company may transfer some amount from the reserves account to the share capital account by a mere book entry. However. What is a Bonus Issue? While investing in shares the motive is not only capital gains but also a proportionate share of surplus generated from the operations once all other stakeholders have been paid. these trades are settled only after the no-delivery period is over. This is done to ensure that investor's entitlement for the corporate benefit is clearly determined. What is an ex-dividend date? The date on or after which a security begins trading without the dividend (cash or stock) included in the contract price. bonus. If there is any corporate benefits such as rights. What is an ex-date? The first day of the no-delivery period is the ex-date. Instead. If the reserves and surplus amount becomes too large. period? Whenever a company announces a book closure or record date.

the cycle begins on Wednesday and ends on the following Tuesday. it means that for every two shares held. or from odd lot holders. On the NSE. For example. So if a shareholder holds two shares.called the bonus ratio and such an issue is called bonus issue. A company cannot buy back through negotiated deals on or off the Stock Exchange. from the Stock Exchange. the shareholder is entitled to one extra share. post bonus he will hold three. . What is a settlement cycle? The accounting period for the securities traded on the Exchange. it is a process by which a company can buy back its shares from shareholders. Clearing and Settlement. if a company announces a two-way split. What is a Split? A Split is book entry wherein the face value of the share is altered to create a greater number of shares outstanding without calling for fresh capital or altering the share capital account. If the bonus ratio is 1:2. it means that a share of the face value of Rs 10 is split into two shares of face value of Rs 5 each and a person holding one share now holds two shares. What is a Buy Back? As the name suggests. through a book-building process. through a tender offer from open market. through spot transactions or through any private arrangement. and on the BSE the cycle commences on Monday and ends on Friday. A company may buy back its shares in various ways: from existing shareholders on a proportionate basis.

If a transaction is entered on the first day of the settlement. At present. However. the same will be settled on the eighth working day excluding the day of transaction. What is short selling? Short selling is a legitimate trading strategy. It is a sale of a security that the seller does not own. When does one deliver the shares and pay the money to broker? As a seller." . in order to ensure smooth settlement you should deliver the shares to your broker immediately after getting the contract note for sale but in any case before the pay-in day. the obligations of each broker are calculated and the brokers settle their respective obligations as per the rules. Short sellers take the risk that they will be able to buy the stock at a more favourable price than the price at which they "sold short. or any sale that is completed by the delivery of a security borrowed by the seller. What is a rolling settlement? The rolling settlement ensures that each day's trade is settled by keeping a fixed gap of a specified number of working days between a trade and its settlement. Simliarly. it will be settled on the fourth working day excluding the day of transaction. one should pay immediately on the receipt of the contract note for purchase but in any case before the pay-in day.At the end of this period. The waiting period is uniform for all trades. bye-laws and regulations of the Clearing Corporation. as a buyer. if the same is done on the last day of the settlement. this gap is five working days after the trading day.

The transaction is squared up at the highest price from the relevant trading period till the auction day or at 20 per cent above the last available Closing price whichever is higher. the Exchange squares up the transaction as per SEBI guidelines.What is an auction? An auction is conducted for those securities that members fail to deliver/short deliver during pay-in. . In "Demat" bad delivery does not exist.e. What happens if the shares are not bought in the auction? If the shares are not bought at the auction i. Bad delivery exists only when shares are transferred physically. un-rectified bad deliveries. the trade matching process for auction starts after the auction period is over. or if there are spelling mistakes in the name of the company or the transfer. if the shares are not offered for sale. As opposed to the normal market where trade matching is an on-going process. Is there a separate market for auctions? The buy/sell auction for a capital market security is managed through the auction market. Three factors primarily give rise to an auction: short deliveries. What is bad delivery? SEBI has formulated uniform guidelines for good and bad delivery of documents. defaced. overwritten. un-rectified company objections. The pay-in and pay-out of funds for auction square up is held along with the pay-out for the relevant auction. Bad delivery may pertain to a transfer deed being torn. mutilated.

What are company objections? A list documenting reasons by a company for not transferring a share in the name of an investor is called company objections. or forgery. the process of transfer is complete. or fake shares. Once the transfer is registered in the share transfer register maintained by the company. Company objection cases that are not rectified or replaced are normally auctioned. How does transfer of physical shares take place? After a sale. or if there is a court injunction preventing the transfer of the shares. Company objection cases should be reported within 12 months from the date of issue of the memo for the original quantity of share under objection. Rejection occurs due to a signature difference. . the share certificate along with a proper transfer deed duly stamped and complete in all respects is sent to the company for transfer in the name of the buyer. Who has to replace the shares in case of company objections? The member who has sold the shares first on the Exchange is responsible for replacing the shares within 21 days of the Exchange being informed. What should one do with company objections? The broker must immediately be notified.

BSE settlement cycle at a glance

Day Activity Monday to Friday Trading on BOLT and daily downloading of statement showing details of transactions Saturday Monday Wednesday Thursday and margin statement, at the end of each trading day. Carry Forward Session (for ‘A’ Group Securities) and downloading of money statement. Marking the mode of delivery – physical or demat Pay-in of physical securities.

Delivery of securities in the Clearing House as per prescribed time slots upto 1:00 p.m.only. Debiting of members’ bank accounts having payable position at 5:00 p.m. Reconciliation of securities delivered and amounts claimed.

Friday Saturday

Pay-out (Physical securities only) Funds pay-out

INTRODUCTION
The National Stock Exchange (NSE) is India's leading stock exchange covering around 400 cities and towns all over India. NSE introduced for the first time in India, fully automated screen based trading. It provides a modern, fully computerized trading system designed to offer investors across the length and breadth of the country a safe and easy way to invest or liquidate investments in securities. Sponsored by the industrial development bank of India, the NSE has been co-sponsored by other development/ public finance institutions, LIC, GIC, banks and other financial institutions such as SBI Capital Market, Stockholding corporation, Infrastructure leasing and finance and so on. India has had a history of stock exchanges limited in their operating jurisdiction to the cities in which they were set up. NSE started equity trading on November 3, 1994 and within a short span of 1 year became the largest exchange in India in terms of volumes transacted. Trading volumes in the equity segment have grown rapidly with average daily turnover increasing from Rs.7 crores in November 1994 to Rs.6797 crores in February 2001 with an average of 9.6 lakh trades on a daily basis.

During the year 2000-2001, NSE reported a turnover of Rs.13, 39,510 crores in the equities segment accounting for 45% of the total market. The NSE represented an attempt to overcome the fragmentation of regional markets by providing a screen-based system, which transcends geographical barriers. Having operationalised both the debt and equity markets, the NSE is planning for a derivative market, which will provide futures and options in equity. Its main objectives has been to set up comprehensive facilities for the entire range of securities under a single umbrella, namely,  To set up a nation wide trading facility for equities, debt instruments and hybrids;  To ensure equal access to investors across the country through an appropriate communication network;  To provide a fair, efficient and transparent securities market to investors using systems; and  To meet the current international standards prevalent in the securities Industry/markets. the electronic trading system;  To ensure shorter settlement cycles and book entry settlement

This section provides a direct link to the web site of companies traded on the Exchange. Listing The prime objective of admission to dealings on the Exchange is to provide liquidity and marketability to securities as also to provide a mechanism for effective management of trading. Constitution The NSE has two segments for trading in securities: Wholesale Debt Market (WDM) and Capital Market (CM). NSE trading terminals are present in around 400 cities and towns all over India. NSE uses sophisticated telecommunication technology through which members can trade remotely from their offices located in any part of the country. Separate membership is required for each segment. Various types of securities of a company are traded under a unique symbol and different series. . Securities listed on the Exchange are required to fulfill the listing eligibility criteria.Locations One of the objectives of NSE was to provide a nationwide trading facility and to enable investors’ spread all over the country to have an equal access to NSE.

Tuesday's trades shall be settled on the next Tuesday and so on. They are selected on the basis of a comprehensive selection criterion. each trading day is considered as a trading period and trades executed during the day are settled based on the net obligations for the day. the trades in rolling settlement are settled on a T+5 basis i. The persons eligible to become TMs are body corporates.e. NSE introduced a new market called Limited Physical Market to provide a facility to small investors to trade and settle physical shares in those securities where compulsory dematerialized trading and settlement is enforced by SEBI. Limited Physical Market Pursuant to SEBI guidelines. Typically trades taking place on Monday shall be settled on the next Monday. In NSE. on the 5th working day. For arriving at the settlement day all intervening holidays. . NSE holidays.Trading members They are recognized members of NSE. The whole time directors/dealers of thess Trading mechanism Rolling Settlement In a rolling settlement. In this segment quantities not exceeding 500 shares of each security held in the name of the investor can be traded. Saturdays and Sundays are excluded. subsidiaries of banks and financial institutions. which include bank holidays.

which have not established connectivity with both the depositories as per SEBI directive. However.Institutional Segment Trading in this market segment is available for institutional investors only. In order to ensure that the overall FII ceiling limits are not violated. members can enter buy orders on behalf of FII/FI clients. The settlement of transactions in this segment is in demat mode only. trading members are allowed to enter sell orders in this market segment only for their FII clients. . Trade for Trade Segment Trading in this segment is available only for those securities. The list of these securities is notified by SEBI from time to time.

a fully automated screen based trading system. at the same price and at the same cost. is one. NSE has made it possible for an investor to access the same market and order book.Trading System NSE operates on the 'National Exchange for Automated Trading' (NEAT) system. They are:  Normal Market All orders which are of regular lot size or multiples thereof are traded in the Normal Market. Normal market consists of various book types wherein orders are segregated as Regular lot orders. . which adopts the principle of an order driven market. Market Types The NEAT system in NSE has four types of market. This has helped reduce jobbing spreads not only on NSE but in other exchanges as well. NSE consciously opted in favour of an order driven system as opposed to a quote driven system. This resulted in a great deal of uncertainty and high transaction costs. an investor wanting to transact in a security not traded on the nearest exchange had to route orders through a series of correspondent brokers to the appropriate exchange. For shares. and Negotiated Trade Orders and Stop Loss orders depending on their order attributes. irrespective of location. which are traded in the compulsory dematerialized mode the market lot of these shares. Till the advent of NSE. thus reducing transaction costs. Special Term orders.

the Exchange on behalf of trading members for settlement related reasons initiates’ auctions. Currently the odd lot market facility is used for the Limited Physical Market as per the SEBI directives. .  Spot Market Spot orders are similar to the normal market orders except that spot orders have different settlement period’s vis-à-vis normal market. An order is called an odd lot order if the order size is less than regular lot size. both the price and quantity of both the orders (buy and sell) should exactly match for the trade to take place. These orders do not have any special terms attributes attached to them. Odd Lot Market All orders whose order size is less than the regular lot size are traded in the odd-lot market. In an odd-lot market. These orders do not have any special terms attributes attached to them. Currently the Spot Market is being used for the Automated Lending & Borrowing Mechanism (ALBM) session.  Auction Market In the Auction Market.

 Initiator The party who initiates the auction process is called an initiator.  Solicitor The party who enters orders on the opposite side as of the initiator is called a Solicitor.There are 3 participants in this market.  Competitor The party who enters orders on the same side as of the initiator is called a Competitor. .

Orders are first numbered and time-stamped on receipt and then immediately processed for potential match.Price priority means that if two orders are entered into the system. by time priority-Time priority means if two orders having the same price are entered. If a match is not found. Regular Lot Book The Regular Lot Book contains all regular lot orders that have none of the following attributes attached to them.Order Books The NSE trading system provides complete flexibility to members in the kinds of orders that can be placed by them.  Within Price. then the orders are stored in different 'books'. Every order has a distinctive order number and a unique time stamp on it. Orders are stored in price-time priority in various books in the following sequence:  Best Price. the order having the best price gets the higher priority. the order that is entered first gets the higher priority. Special Terms Book . a) All or None (AON) b) Minimum Fill (MF) c) Stop Loss (SL) 2. The Capital Market segment has following types of books: 1.

A sell order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order.The Special Terms book contains all orders that have either of the following terms attached: a) All or None (AON) b) Minimum Fill (MF) Note: Currently. These entries are matched with identical counterparty entries only. the order is released in the Regular lot book. Stop-Loss Book Stop Loss orders are stored in this book till the trigger price specified in the order is reached or surpassed. Negotiated Trade Book The Negotiated Trade book contains all negotiated order entries captured by the system before they have been matched against their counterparty trade entries. When the trigger price is reached or surpassed. . It is to be noted that these entries contain a counter party code in addition to other order details.e AON and MF are not available on the system as per the SEBI directives. The stop loss condition is met under the following circumstances: Sell order . 3. 4. special term orders i.

The system attempts to match an active spot lot order against the passive orders in the book.Buy order . 7. Odd Lot Book The Odd lot book contains all odd lot orders (orders with quantity less than marketable lot) in the system. Auction Book This book contains orders that are entered for all auctions. 6. Currently. This is referred as the Limited Physical Market (LPM).A buy order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order. Spot Book The Spot lot book contains all spot orders (orders having only the settlement period different) in the system. The system attempts to match an active odd lot order against passive orders in the book. 5. . Currently the Spot Market book type is being used for conducting the Automated Lending & Borrowing Mechanism (ALBM) session. The matching process for auction orders in this book is initiated only at the end of the solicitor period. pursuant to a SEBI directive the Odd Lot Market is being used for orders which has a quantity less than or equal to 500 (Qty more than the market lot) for trading.

Order Matching Rules The best buy order is matched with the best sell order. This ensures that the earlier orders get priority over the orders that come in later. For order matching. An order may match partially with another order resulting in multiple trades. of all buy orders available in the market at any point of time. So. These conditions are broadly classified into three categories: time related conditions. Members can proactively enter orders in the system. price-related conditions and quantity related conditions. the best buy order is the one with the highest price and the best sell order is the one with the lowest price. Orders are always matched at the passive order price. a seller would obviously like to sell at the highest possible buy price that is offered. members may be reactive and put in orders that match with existing orders in the system. Alternatively. Orders lying unmatched in the system are 'passive' orders and orders that come in to match the existing orders are called 'active' orders. which will be displayed in the system till the full quantity is matched by one or more of counterorders and result into trade(s) or is cancelled by the member. This is because the system views all buy orders available from the point of view of a seller and all sell orders from the point of view of the buyers in the market. Order Conditions A Trading Member can enter various types of orders depending upon his/her requirements. Hence. For example . the best buy order is the order with the highest price and the best sell order is the order with the lowest price.

 GTC .A Day order.A Good Till Cancelled (GTC) order is an order that remains in the system until the Trading Member cancels it. as the name suggests.An Immediate or Cancel (IOC) order allows a Trading Member to buy or sell a security as soon as the order is released into the market. Partial match is possible for the order. At the end of this period the order will get flushed from the system.A Good Till Days/Date (GTD) order allows the Trading Member to specify the days/date up to which the order should stay in the system.  IOC . failing which the order will be removed from the market. Each day/date counted is a calendar day and inclusive of holidays. and the unmatched portion of the order is cancelled immediately. the order gets cancelled automatically at the end of the trading day. If the order is not matched during the day. The Exchange notifies the maximum number of days a GTD order can remain in the system from time to time. The days/date counted are inclusive of the day/date on which the order is placed. is an order which is valid for the day on which it is entered.Time Conditions  DAY . The Exchange notifies the maximum number of days a GTC order can remain in the system from time to time.  GTD . It will therefore be able to span trading days if it does not get matched. .

AON and MF orders are not available on the system as per SEBI directives.All or None orders allow a Trading Member to impose the condition that only the full order should be matched against. Stop Loss (SL) Price/Order The one which allows the Trading Member to place an order which gets activated only when the market price of the relevant security reaches or crosses a threshold price. Price Conditions Limit Price/Order An order. If the full order is not matched it will stay in the books till matched or cancelled. . AON . This may be by way of multiple trades. Until then the order does not enter the market. Note: Currently. Market Price/Order An order to buy or sell securities at the best price obtainable at the time of entering the order. which allows the price to be specified while entering the order into the system.

An order with a DQ condition allows the Trading Member to disclose only a part of the order quantity to the market. the limit price is 95. This order is added to the regular lot book with time of triggering as the time stamp. then this order is released into the system once the market price reaches or exceeds 93. the trigger is 93. For example. e. an order of 1000 units with minimum fill 200 will require that each trade be for at .Sell order A sell order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or falls below the trigger price of the order. The Exchange may set a minimum disclosed quantity criteria from time to time. If for stop loss buy order.00. MF . an order of 1000 with a disclosed quantity condition of 200 will mean that 200 is displayed to the market at a time. For example.g.Minimum Fill (MF) orders allow the Trading Member to specify the minimum quantity by which an order should be filled.00 Quantity Conditions Disclosed Quantity (DQ).00. Buy order A buy order in the Stop Loss book gets triggered when the last traded price in the normal market reaches or exceeds the trigger price of the order.00.00 and the market (last traded) price is 90. After this is traded. another 200 is automatically released and so on till the full order is executed. as a limit order of 95.

. The Exchange may also allow a Trading Member to set up a network of dealers in different cities all of whom are provided a connection to the NSE central computer. A member can have several user IDs allotted to him by which he can have more than one employee using the system concurrently. Trading Workstation The trader workstation is the terminal from which the member accesses the trading system.least 200 units. The Exchange may lay down norms of MF from time to time. Each trader has a unique identification by way of Trading Member ID and User ID through which he is able to log on to the system for trading or inquiry purposes. A Trading Member can define a hierarchy of users of the system with the Corporate Manager at the top followed by the Branch Manager and Dealers. In other words there will be a maximum of 5 trades of 200 each or a single trade of 1000. Trading system name and date. Trader Workstation Screens The Trader Workstation screen of the Trading Member is divided into several major windows: Title Bar The title bar displays the current time.

which appear in the ticker. Outstanding Orders. Order Status. Supplementary Menu. Invoking the Security List and selecting the securities from the window can also set up securities. The market information displayed . Snap Quote. Buy order entry.Tool Bar A window with different icons which provides quick access to various functions such as Market By Order. Net Position. which are of interest to the Trading Member. The Symbol field incorporates the Company name and the Series field captures the segment/instrument type. Online Backup. The purpose of Market Watch is to view market information of pre-selected securities. the trading member can set them up by typing the Security Descriptor consisting of a Symbol field and a Series field. A third field indicates the market type. All these functions are also available on the keyboard. Previous Trades. Market Watch Window The Market Watch window is the main area of focus for a Trading Member. Market Inquiry. Sell order entry. For each security in the Market Watch window. Security List and Help. Auction Inquiry. Order Cancellation. Ticker Window The ticker displays information about a trade as and when it takes place. market information is dynamically updated on a real time basis. Order Modification. Market Movement. Activity Log. The user has the option to set-up the securities. To monitor various securities. Market Watch. Market By Price.

total sell order quantity for the best sell price. Ex or cum dividend. the last traded price change indicator ('+' if last traded price is better than the previous last traded price and '-' if it is worse) and the no delivery indicators are displayed.. . the corporate action indicator (e.).g. For each security.is for the current best price orders available in the regular lot book. rights etc. "SUSPENDED" appears in front of the security. best sell price. If the security is suspended. the total buy order quantity for the best buy price. interest. the Last Traded Price (LTP).

Outstanding Orders. the user has the information on the current value of the Nifty. This value is displayed at the extreme right hand corner of the ticker window. Previous Trades. Market By Order (MBO) The purpose of Market by Order is to enable the user to view outstanding orders in the trading books in the order of price/time priority. Open. The orders are presented in a price/time priority with the "best priced" order at the top. which are not triggered will not be displayed on the window. Order Status and Market Inquiry can be viewed. Market by Price (MBP) The purpose of Market by Price is to enable the Trading Member to view aggregate orders waiting in the book at given prices. Low and current index values at the time of invoking this inquiry screen. Activity Log. Previous Trades (PT) . Index Inquiry gives information on Close. Market by Price. Stop Loss orders. the inquiries such as Market by Order.On line index and Index Inquiry With every trade in a security participating in Index. Buy orders are displayed on the left side of the window and Sell orders on the right side. High. The information is displayed for each order. Inquiry Window In this window.

It displays information only of those orders in which some activity has taken place. Last traded price change indicator. Outstanding Orders (OO) The purpose of Outstanding Orders is to enable a Trading Member to view his/her own outstanding buy or sell orders for a security. Low. High. Market Inquiry (MI) Market Inquiry enables the user to view the market statistics like Open. but is not yet completely traded or cancelled. which have been performed on any order of the Trading Member such as whether. Previous close. which have entered the books but have not been matched (fully or partially) or modified or cancelled. Current status of the order and other order details are displayed.The purpose of this window is to provide information to users for their own trade. An outstanding order will be an order that was entered by the user. the trade details are also displayed. it has been modified or has been cancelled. It does not display orders. Activity Log (AL) The Activity Log shows the activities. the order has been traded against fully or partially. Last traded . Order Status (OS) Order Status enables the user to look into the status of a specific order. In case the order is traded.

The details include total buy and sell order quantity value. This is normally used for securities which are not already on display in the Market Watch window. The system will request re-confirmation of an order so that the user . Snap Quote The Snap Quote feature allows a Trading Member to get instantaneous market information on any desired security. It gives details of the movement of the scrip for a time interval. The information presented is the same as that of Market Watch window. Most Active Securities This screen gives a list of the securities with the highest traded value during the day and the quantity traded for each of them. Low. High. A user may find inquiry screens like Market Movement. Most Active Securities and Net Position useful. These are available in the supplementary menu.quantity. date and time etc. Last traded price etc. Net Position This functionality enables the user to interactively view his net position for all securities in which he has traded. Market Movement (MM) The Market Movement screen provides information to the user regarding the movement of a security for the current day. Order/Trade Window Order entry mechanisms enable the Trading Member to place orders in the market. Open.

The trade confirmation slip contains the order and trade no. Orders and trades are identified and linked by unique numbers so that the investor can check his order and trade details. date.. Systems Message Window This window is used to view messages from the Exchange to all specific Trading Members. There is an option to copy the file to any drive of the computer or on a floppy diskette. quantity. price. . price and quantity traded. Trading members find this convenient in their back office work. order no. Orders once placed on the system can be modified or cancelled till they are matched. The order confirmation slip contains among other things. amount etc.. There is a facility to generate online order/trade confirmation slips as soon as an order is placed or a trading is done. order conditions like disclosed or minimum fill quantity etc. Once orders are matched they cannot be modified or cancelled. trade time. Supplementary Menu Some of the supplementary features in the NEAT system are: On line back up An on line back up facility is provided which the user can invoke to take a back up of all order and trade related information.is cautioned before the order is finally released into the market. security name.

This software would be a replacement of the NEAT front-end software that is currently used by members to trade on the NSE trading system. as may be required in this regard. . Computer-to-Computer Link (CTCL) Facility NSE offers a facility to its trading members by which members can use their own trading front-end software in order to trade on the NSE trading system. This Computer-to-Computer Link (CTCL) facility is available only to trading members of NSE. integration of back-office operations etc. risk management tools. Through CTCL facility Trading Members can use their own software running on any suitable hardware/software platform of their choice. The dealers of the member may trade using the software remotely through the member's own private network. subject to approvals from Department of Telecommunication etc. Members can use software customized to meet their specialized needs like provision of on-line trade analysis.Off Line Order Entry A member is able to make an order entry in the batch mode.

promoting and maintaining. NSCCL assumes the counter-party risk of each member and guarantees settlement through a fine-tuned risk management system and an innovative method of on-line position monitoring. It provides a facility for multiple settlement mechanisms including. It has successfully brought about an up-gradation of the clearing and settlement procedures and has brought Indian financial markets in line with international markets. short and consistent settlement cycles. account period settlement for dealings in physical securities and dematerialized securities. rolling settlement (T+5 basis) in dematerialized segment etc. NSCCL carries out the clearing and settlement of the trades executed in the Equities and Derivatives segments and operates Subsidiary General Ledger (SGL) for settlement of trades in government securities. NSCCL has empanelled 9 clearing banks to provide banking services to trading members and has established connectivity with both the depositories for electronic settlement of securities.National Securities Clearing Corporation Limited National Securities Clearing Corporation Ltd. to provide counter-party risk guarantee. It aggregates trades over a trading period. It also undertakes settlement of transactions on other stock exchanges like. a wholly owned subsidiary and settlement of securities. (NSCCL). nets the positions to determine the liabilities of members and ensures movement of funds and securities to meet respective liabilities. the Over the Counter Exchange of India. . It assumes the counter-party risk of each member and guarantees financial settlement. and to operate a tight risk containment system. It operates a well-defined settlement cycle and there are no deviations or deferments from this cycle.

Comparing it with a steady 12 per cent annual return offered by a bank fixed deposit or any AAA rated corporate bandit seemed that The high-risk and uncertain return of vyaj badla would start looking like a bad investment option. rational look at the entire mechanism. especially when brokers on BSE and other regional stock exchanges are marketing vyaj badla schemes to their clients aggressively. returns could diminish to just around 6-8 per cent a year. it is imperative that one takes a hard. This is so because financing badla is a definite no-no for the first-time investor in the stock market and also for those who don't have the time to constantly monitor the status of his/her investments and fluctuations in the market returns. the returns were not guaranteed. coupled with liquidity. Before an investor start believing in the stories of superlative returns (in excess of 20 per cent). safety and flexibility. . unfortunately. This rosy picture could well be a reality during a bull run. Vyaj Badla In the vyaj badla system. But having said that. Investors need to be aware of the problems.BADLA TRADING Badla is a complex system that contains many a pitfall for the uninitiated and the unwary. there was a very high chance that an investor may end up with an average annual return of 14-18 per cent or sometimes even higher. but when the market was under a bear hug.

the nerve-wracking tension that accompanies stock market fluctuations may well take its toll. How did the Badla function? Assume that there had been 12 trades of 100 shares each in "ABC" stock. six want to take delivery. Shares delivered by the seller were kept by the exchange in the clearing-house and allocated to the financier's broker in a special account. On the BSE. This helped the exchange to . Of the sellers. an investor’s final returns get lopped off to that extent. thus getting subjected to capital gains tax of 30 per cent. Although nay Sayers might feel that vyaj badla provides an investor with an opportunity to maximize his earnings in a bull market. eight wished to deliver the shares while four were keen on carrying their positions forward. Now six buyers made the payment for their purchases. To ensure payment to the remaining two sellers for their 200 shares. the fact remains that it is a good option for the experienced investor. Else.And then the taxman cometh! Vyaj badla transactions began to be treated as purchase and sale of shares. The demand and supply of funds and shares determined this rate. forming the financier's collateral. Four "buy" carry-forward positions get matched against four "sell" carry-forward positions. This financier charged interest (badla) for the money paid on behalf of the two buyers for them. Six buyers and six sellers got squared off. Thus. while six wanted to carry forward their positions. and there are 12 separate buyers and sellers respectively. vyaj badla financiers came in. brokers who were sure of taking or making delivery of shares mark their respective "for delivery" positions. while eight sellers affect delivery. Among the buyers.

the base price (hawala rate) is fixed. Prior to the commencement of this session.38 percent works out to 26 paise. . A constant fluctuation in these values during the two-and-a-half hour session is due to the constant change in demand and supply. 69. In this case. With the next trading cycle ending. it would be 0. while the other would show a sale of 100 shares at Rs 69. If the financier wants to pay for 100 shares at 20 per cent per annum and the trade gets matched. An outstanding "buy" position in a stock sees a "seedha badla" where the financiers participate. The difference will be the financiers earning for that week. Specified quantities of the stock on offer are bought and sold at the financier's desired interest rate . which the closing price of the scrip was normally on Friday. the interest rate is converted into a weekly figure. An outstanding "sell" position in the stock sees an "ulta" or "undha badla" where the stock lenders participate. In this case. The difference is thrown open to the market's badla trading session on Saturday.arrive at the net outstanding positions on Friday evening (the last day of the settlement on BSE). The broker would give the financier a badla bill or informal contract note. On the hawala rate of Rs 69. The terminals would constantly keep flashing the best badla rate and the best annual yield for each stock on offer for a particular quantity. let's assume the hawala rate to be Rs. by deducting them from the broker's weekly out standings. which would have two entries.the badla rate. One would show a purchase of 100 shares at Rs 69 per share. the financier can either receive the difference or roll over his/her money to a new badla transaction. this 0.38 per cent. and also market perception.26 per share.

It is advisable to enter into a firm brokerage percentage prior to the commencement of the relationship. depending upon their demand and supply. brokers using the discretionary allocation of stocks to the badla account should pay a weighted average return to each client. These rates fluctuate considerably throughout the session. Most brokers don't accept anything less than Rs 1 lakh per client for badla financing. And the stock selection too is at their discretion. it is advisable to look for brokers who have automated this process. This should be reflected in the badla bills. Hence. Ideally. trimming down your annual yield further. Only the former can carry out badla trades. Memberships on BSE are split between type-I and type-II brokers. as you would be one among a lot of clients whose money has been collectively invested in vyaj badla. if you are keen on becoming a vyaj badla financier. Badla rates vary between stocks. As in any other market transaction. you should approach the type-I broker. for they maintain higher margins with the exchange. Brokerage for such deals could range between 1-2. one cannot avoid brokerage in a vyaj badla transaction too. For getting the weighted average return on badla finance. But it would be prudent for you to know the basis of allocation of stocks to you.5 per cent.Who can participate? Not all brokers can participate in the badla process. .

By virtue of the exchange's settlement cycle. Even a 10 per cent downward shift in their position would wipe out the broker's entire net worth. Apart from the large institutional brokers. there have been instances of brokers (having large carry-forward positions in highly speculative stocks) defaulting. This further reduces your yield. The BSE's Trade Guarantee Fund could be of some succour and solace in these situations. he got the shares held in the exchange's clearinghouse against his broker’s name. Failure to cash in on your interest gain at the end of the trading cycle gives the confidence to your broker to automatically roll over your investment to the next cycle. In the recent history of BSE. While opting out. your money gets released within a ten-day period. always time your exit. the financier is in a larger mess. most brokers on BSE have a net worth of Rs 1-2 crore. . Although these shares were enjoying very high badla rates at the time of the default. But his risk erosioned in the value of the share during the days that it takes to release the shares. the prices had dipped sharply by the time the financiers got their shares.Are investors safe? What is the investor’s safeguard in times of default? If the forward buyer defaults. Badla positions taken by them sometimes go up to 15-20 times their net worth. And then you could bid goodbye to your money too. but just that. If the broker defaults. on which he had a lien through his Badla bill.

As in the case of defaults, the delay in the release of your money can be detrimental. So factor in those extra days while calculating your actual return. Although vyaj badla is considered to be an effective short-term instrument, as is the case with all such instruments, the delay can really eat into your returns. Given the quirks of the vyaj badla transactions and the inherent risks involved, it can be concluded that amateurs should stay away it is strictly for the pro and the strong hearted. Substitutes to Badla Financial derivatives By far the most significant event in finance during the past decade has been the extraordinary development and expansion of financial derivatives... These instruments enhance the ability to differentiate risk and allocate it to those investors most able and willing to take it -- a process that has undoubtedly improved national productivity growth and standards of living. -- Fed Chairman Alan Greenspan Following the introduction of index futures, the Securities and Exchange Board of India (SEBI) permitted the BSE and the NSE to introduce more derivatives, such as options on indices and individual stocks. But an instrument that may be more in line with the domestic market structure -single-stock futures -- is not under consideration. Single-stock futures are a way to reap the benefits of a stock's performance without actually owning the stock. Theoretically, they offer the benefits of

ownership, of leveraging the stock or its underlying asset. But a similar opportunity is not available to the speculator-investor to sell options in the underlying scrip. As delivery of futures contracts is on a future date, the investor has to put up only the margin money. Hence, he can leverage on the margins to buy more units of the underlying security. One of the advantages enjoyed by single-stock futures is that they are cheaper to trade and easier to use for hedging strategies than options. Cheaper, because margins in futures trading are lower than in options. But the valuations of futures contracts are not as complicated as that of options. Hence, small investors find them relatively easy to understand and use. Trading options: Trading options are riskier than futures. This is purely from the optionswriter's perspective. Market making in options depends to a great extent on institutions willing to write the contracts. Since the buyer of an option contract is not under any obligation to exercise his right, his risk is limited to the premium paid for purchasing the right. However, the writer is under an obligation to deliver. This means the risk borne by the option-writer is enormous. Exchanges normally guarantee the writer's position. Hence, to limit default in the market, the margin requirements are quite high. For instance, in international markets, while the margin rate for index futures contracts is around 5 per cent, that for index options works out to the commission received plus around 15 per cent of the contract's notional value.

Thus, in this situation, there is excessive risk for the options-writer and transactions costs could be high. Currently, the regulations prevent funds from taking speculative positions in the spot market. So, they may not be allowed to write options. A market exists only if there is a writer and a buyer. But given that there are few takers for the futures market, it is difficult to foresee a lot of interest in the options market.

Bad delivery rectification/replacement by the delivering member. . Pay-in funds by members through the Clearing Bank.Shortage identification at Clearing House. Pay-out day for Securities and Funds. Auction for bad delivery not rectified/replaced. Pay-in of securities. Auction pay-in day for Securities and Funds.Such trades will be added to the member obligation. Bad delivery auction pay-in. delivery of documents by the delivery members at the Clearing House. Pick-up of bad deliveries for rectification. Bad delivery reporting by the receiving member to the Clearing House and intimation to the delivering member. Auction for shortages.NSE settlement cycle at a glance Date 1-7 8 13 14 15 17 18 20 22 23 24 Particulars Wednesday-Tuesday Wednesday Monday Tuesday Wednesday Friday Saturday Monday Wednesday Thursday Friday Activity Trading Period Custodians report trades which they will not settle. Bad delivery auction pay-out. Auction pay-out.